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For That Reason The Challenge Is To Turn A Reduced Purchasing Capacity On The ...

For that reason the challenge is to turn a reduced purchasing capacity on the demand side.
Concerning interest rates and people's propensity to save, it could lead this assessment to imply that private debt levels are rising while at the same time saving rates (public and private) are depressing further.
A clear example of depression is the land price index. In the early nineties, a downfall in property prices triggered the longest recession in Japan. Table 1 illustrates the extent of the effect on prices and how they have not recovered since then. (Fulford, May 2003).

Trade Balance
Exports have reacted strongly by matching highest levels in 1998 and diversifying portfolio across segments. On the trade balance side, export's results are set to continue outperforming imports, 10-year trade surplus will continue. The Government has boosted the sector by injecting more than 13 billions Yens to keep the currency above 115 per dollar as a resistance point. (Jobson , FT World Report 2003)
Fiscal Outlook
By enhancing debt, Japanese authorities are making a 5% deficit gap unmanageable over the short and medium run. As mentioned before, the national debt accounts for 160% of the GDP in 2006. This large liability on books was increased in the past due to financial public mess, small savings and exuberant public spending.
Spending levels were caused by government's expensive development plans to reactivate the economy. As for the taxes structure, higher taxes have partly offset more spending ad lower public savings. Taxes in Japan are not necessarily equal to the contribution capacity of the population's average earnings, if taxes are set to continue at these levels, tax payers' effect will continue reducing domestic demand.
Looking at government bonds' outstanding variation in table 1 notes the Japanese government preference on bonds' funding and how it has increased its outstanding debt through this mechanism. As the economy stands, higher levels of debt carry a bigger chunk of the budget to make repayments for debt's service resulting in reduced budget to encourage spending, like a lower income tax.


Financial Markets Outlook


Source: Yahoo/Finance
Since its dramatic fall in 2003; the stock market index has soared more than double taken as an important confidence indicator for the economy. Ten-year JGB (treasury bond spread) yields have gone up to around 1.2%. Corporations in Japan have also started to deliver profitable results.
Future Outlook
According to the Economist Intelligence Unit, the ending of monetary tightening in the US will bring a further interest rate increase by the Bank of Japan as direct repercussion on its policies.
On the political stand, Prime Minister Junichiro Koizumi is set to step down in September and Mr Shinzp is most likely to succeed him LDP (Liberal Democratic Party); political support is yet on the brink.


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