Japan’s virus-hit economy ‘too weak’ for new PM’s reforms plans

Yoshihide Suga is planning a fiscal overhaul. (AP)
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Updated 17 September 2020

Japan’s virus-hit economy ‘too weak’ for new PM’s reforms plans

  • California-based PIMCO, a unit of German insurer Allianz, manages 12.84 trillion yen ($121.90 billion) in assets for Japanese clients

TOKYO: Japan’s new leader Yoshihide Suga will struggle to push through structural reforms as they would be too painful for an economy hit by the coronavirus crisis, said an executive of PIMCO, one of the world’s largest investment firms.

Tomoya Masanao, head of the Pacific Investment Management Co’s (PIMCO) Japan arm, also said the Bank of Japan’s ultra-loose monetary policy will allow the government to continue ramping up spending, but not without huge costs.

Since adopting in 2016 a policy capping borrowing costs, the BOJ’s policy is essentially financing public debt and is integrated into the government’s debt-management strategy, Masanao said.

“It’s impossible for the BOJ to make an independent decision on exiting ultra-easy policy. Any move toward an exit would need to take into account the impact on long-term interest rates and fiscal policy,” he said.

California-based PIMCO, a unit of German insurer Allianz , managed 12.84 trillion yen ($121.90 billion) in assets for Japanese clients as of June 2020.

Suga, who was elected as new prime minister on Wednesday, has vowed to break barriers that hamper competition and pursue reforms to revitalize the world’s third-largest economy.

If successful, Suga would provide the missing third arrow of his predecessor Shinzo Abe’s “Abenomics” policies that consisted of bold fiscal, monetary easing and structural reforms.

But Masanao said he was doubtful Suga can push through painful reforms, when there is little fiscal and monetary ammunition left to support an economy hit by COVID-19.

“Abenomics succeeded in boosting growth and jobs, which was why Abe stayed in power for so long. But he didn’t use the political capital to push through reforms,” Masanao said.

“Suga also has a structural reform agenda. But the point is you need to first reflate the economy to undertake real reforms, which are by nature deflationary at least in the short run.”

Japan deployed two huge spending packages, accompanied by monetary easing steps by the BOJ, to cushion the blow from the pandemic that pushed the economy into deep recession.

By successfully capping borrowing costs at zero, the BOJ will likely allow the government to keep spending massively without causing an unwelcome spike in inflation, Masanao said.

But maintaining huge fiscal and monetary support for too long could distort market pricing and hurt Japan’s productivity by hampering reallocation of resources to growth areas, he said.

“The unintended consequences of prolonged ultra-loose policy are huge, most notably by distorting asset prices,” Masanao said. “It’s eliminating the chance of proper market pricing.”


Airline passengers want to see barriers to boost confidence — industry execs

Updated 11 min 45 sec ago

Airline passengers want to see barriers to boost confidence — industry execs

  • Other pandemic-related trends could include more private business class seating on narrowbody planes
  • Passengers say they do not all trust industry assurances about high air quality onboard

SYDNEY: Airline passengers want visible plastic barriers in the cabin to reinstill confidence in flying during the pandemic, saying they do not all trust industry assurances about high air quality onboard, aviation industry executives said on Thursday.
Other pandemic-related trends could include more private business class seating on narrowbody planes, adding touchless lavatory features and permanent conversions of passenger planes to freighters, according to a panel at the MRO Asia-Pacific conference held online.
Embraer SA is studying reusable and disposable plastic barriers for its regional jets, but challenges include making sure they are lightweight, not flammable and do not affect aircraft cleaning and evacuation, said Lais Port Antunes, a business development manager in the planemaker’s Asia-Pacific division.
“Modern aircraft are already equipped with excellent technology to filter the air,” she said. “The passengers should feel safe in an aircraft cabin, but they need to see actions.”
Tan Hean Seng, a senior executive at Singapore Technologies Engineering Ltd, said airline customers, fearing cost increases, did not seem interested putting fewer seats in economy class. But, he added, the airline still needed to reassure them about risk.
“Having a shield between the seats, the passengers may feel safer, especially during mealtimes when passengers take off masks and there is potential contamination,” Tan said, adding his company had developed a prototype.
In business class, airlines are already expressing more interest in lie-flat seating options as they look to use narrowbody planes on longer routes, Boeing Co. Vice President of Specialty Products and Services Kate Schaefer said.
“There is an awful lot of interest in those premium passengers in having a pod-type solution,” she said. “There is going to be a lot of interest in pods, doors and staggered seating.”