Japan Bid for G-20 Leadership Stymied by Aso, Economy

By John Brinsley

April 2 (Bloomberg) -- Japanese leaders’ desire to “puff our chests out” at the Group of 20 summit may quickly run out of air when Prime Minister Taro Aso arrives at the Group of 20 summit almost empty-handed.

The country’s fourth leader in three years said before he left Tokyo for London that a new economic stimulus package won’t be ready before mid-April. Two previous efforts totaling 10 trillion yen ($101 billion) failed to arrest a worsening recession in the world’s second-biggest economy.

Aso, who pledged “to exercise leadership,” has yet to give an amount for the next aid package; Japanese industrial production fell 9.4 percent in February and economists estimate gross domestic product shrank almost 11 percent last quarter. G- 20 leaders are vying to show off their responses at today’s meeting, from China’s 4 trillion yuan ($585 billion) spending plan to a joint U.S.-U.K. push for coordinated pump-priming.

“It’s almost laughable,” said Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “There are things he can be doing to support the economy and he’s not doing them. Why should we expect any difference at the G-20?”

It was future Finance Minister Kaoru Yosano who said in January that Japanese leaders needed to pay heed to “whether we’ll be able to puff our chests out and explain what we’ve done” to fix our problems at the G-20. Since then, reports have shown an unprecedented drop in exports along with the decline in industrial production, triggering the yen’s biggest quarterly loss since 2001.

Nakagawa Departure

Japan’s most public moment at global financial crisis meetings to date was in February when then-Finance Minister Shoichi Nakagawa appeared to be drunk during a press briefing in Rome. He resigned, leaving replacement Yosano, 70, juggling three Cabinet positions as the economy stumbles toward its deepest postwar recession.

Japan’s economy probably shrank at an annual 10.9 percent pace last quarter, according to the median estimate of 17 economists surveyed by Bloomberg News. That would follow a 12.1 percent contraction in the final three months of 2008, the worst among advanced economies and the nation’s steepest since 1974.

Confidence at the biggest manufacturers fell to a record low, the Bank of Japan’s Tankan survey showed yesterday. The jobless rate climbed to a three-year high last month with fewer than six positions available for every 10 applicants.

Toyota, NEC Firings

Toyota Motor Corp. and NEC Corp. are among companies that are firing workers, increasing pressure on the government to give more assistance to the unemployed, most of whom don’t receive benefits. Aso’s initial offering to help households -- a cash handout of 12,000 yen per person -- was dismissed by the opposition as an attempt to win votes before an election that must be held within six months.

Political maneuvering has played a big part in Japan’s faltering response to the crisis. Each of Aso’s previous stimulus plans took three months to pass through parliament, held up by a combination of his desire to avoid calling an early election and gridlock caused by the opposition’s control of the upper house.

Aso’s approval rating fell to 9.7 percent in a February survey by Tokyo-based Nippon TV, before climbing to about 20 percent after the top aide to opposition leader Ichiro Ozawa was indicted for campaign funding violations.

Personal Gaffes

Personal gaffes by Aso in the past six months include his saying doctors lack common sense, mothers need to be disciplined more than their children and referring to former British premier Tony Blair as “Tony Brown” during a keynote speech at the World Economic Forum in Davos, Switzerland.

“Talking about credibility with this lot is a contradiction in terms both internationally and domestically,” said Noriko Hama, a professor of economics at Doshisha Business School in Kyoto. “Aso is making a desperate ploy for respect on the international stage after all the lost ground at home.”

Aso, 68, this week pointed to a pledge to provide a $100 billion line of credit to the International Monetary Fund as an example of Japanese leadership. He promised $22 billion in trade assistance as well as $20 billion in overseas aid to developing countries in a meeting yesterday with Indonesian President Bambang Yudhoyono in London.

“Japan does deserve some credit for being ahead of everyone else in providing aid to international institutions,” said Robert Feldman, head of Japan economic research at Morgan Stanley in Tokyo. “We haven’t seen as much leadership on global issues as we’d like.”

Debt Constraints

Japan’s ability to spend its way out of recession is constrained by a debt burden that is projected to swell to 197 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development. That ratio is the highest among OECD countries and almost double that of the U.S.

The ruling Liberal Democratic Party has recommended buying shares to bolster the stock market and purchasing securities held by banks to boost their capital. Japan’s benchmark Topix Index has tumbled 35 percent in the past year.

The next stimulus will target employment and green energy and may include lowering inheritance taxes, Aso said at a March 31 press conference.

“The government really needs to have a strong recovery package,” said Masahiro Kawai, dean of the Asian Development Bank Institute and a former Finance Ministry and World Bank official. “The U.S. is coming up with a strong fiscal package. The Europeans are somewhat reluctant but want to come up with a similar although smaller package. Japan should also.”

To contact the reporter on this story: John Brinsley in Tokyo at jbrinsley@bloomberg.net