Monetary and fiscal policy of Japan
Encyclopedia
Monetary policy pertains to the regulatio, availability, and cost of credit, while fiscal policy deals with government expenditures, taxes, and debt. Through management of these areas, the Ministry of Finance
regulated the allocation of resources in the economy, affected the distribution of income and wealth among the citizenry, stabilized the level of economic activities, and promoted economic growth and welfare.
The Ministry of Finance played an important role in Japan's postwar economic growth. It advocated a "growth first" approach, with a high proportion of government spending going to capital accumulation, and minimum government spending overall, which kept both taxes and deficit spending down, making more money available for private investment. Most Japanese put money into savings accounts, mostly postal savings
.
Three types of budgets are prepared for review by the National Diet
each year. The general account budget includes most of the basic expenditures for current government operations. Special account budgets, of which there are about forty, are designed for special government programs or institutions where close accounting of revenues and expenditures is essential: for public enterprises, state pension funds, and public works projects financed from special taxes. Finally, there are the budgets for the major affiliated agencies, including public service corporations, loan and finance institutions, and the special public banks. Although these budgets are usually approved before the start of each fiscal year, they are usually revised with supplemental budgets in the fall. Local jurisdiction budgets depend heavily on transfers from the central government.
Government fixed investments in infrastructure and loans to public and private enterprises are about 15 % of GNP
. Loans from the Fiscal Investment and Loan Program, which are outside the general budget and funded primarily from postal savings, represent more than 20 % of the general account budget, but their total effect on economic investment is not completely accounted for in the national income statistics. Government spending, representing about 15 % of GNP in 1991, was low compared with that in other developed economies. Taxes provided 84.7 % of revenues in 1993. Income tax
es are graduated and progressive. The principal structural feature of the tax system is the tremendous elasticity of the individual income tax. Because inheritance
and property tax
es are low, there is a slowly increasing concentration of wealth in the upper tax brackets. In 1989 the government introduced a major tax reform, including a 3 % consumer tax. This tax has been raised to 5 % by now.
After the breakdown of the economic bubble
in the early 1990s the country's monetary policy has become a major reform issue. US economists have called for a reduction in Japan's public spending, especially on infrastructure projects, to reduce the budget deficit. To force a reduction of the loan program, partially financed through postal savings, then-Prime Minister
Junichiro Koizumi
aimed to push forward postal privatization
. The postal deposits, by far the largest deposits of any bank in the world, would help strengthening the private banking sector instead.
is at the heart of the political process because it draws up the national budget each year. This responsibility makes it the ultimate focus of interest groups and of other ministries that compete for limited funds. The budgetary process generally begins soon after the start of a new fiscal year on April 1. Ministries and government agencies prepare budget requests in consultation with the Policy Research Council. In the fall of each year, Budget Bureau examiners reviews these requests in great detail, while top Ministry of Finance officials work out the general contours of the new budget and the distribution of tax revenues. During the winter, after the release of the ministry's draft budget, campaigning by individual Diet
members for their constituents and different ministries for revisions and supplementary allocations becomes intense. The coalition leaders and Ministry of Finance officials consult on a final draft budget, which is generally passed by the Diet in late winter.
In broad outline, the process reveals a basic characteristic of Japanese political dynamics: that despite the oft-stated ideals of "harmony" and "consensus," interests, including bureaucratic interests, are in strong competition for resources. Political leaders and Budget Bureau officials need great skill to reach mutually acceptable compromises. The image of "Japan Incorporated," in which harmony and unanimity are virtually automatic, belies the reality of intense rivalry. The late-twentieth-century system is successful insofar as political skills and appreciation of common interests minimize antagonisms and maintain a balance of power among groups. It is unclear, however, whether this system will continue as Japan faces such problems as growing social inequality and an aging society
.
Ministry of Finance (Japan)
The ' is one of cabinet-level ministries of the Japanese government. The ministry was once named Ōkura-shō . The Ministry is headed by the Minister of Finance , who is a member of the Cabinet and is typically chosen from members of the Diet by the Prime Minister.The Ministry's origin was back in...
regulated the allocation of resources in the economy, affected the distribution of income and wealth among the citizenry, stabilized the level of economic activities, and promoted economic growth and welfare.
The Ministry of Finance played an important role in Japan's postwar economic growth. It advocated a "growth first" approach, with a high proportion of government spending going to capital accumulation, and minimum government spending overall, which kept both taxes and deficit spending down, making more money available for private investment. Most Japanese put money into savings accounts, mostly postal savings
Japan Post
was a government-owned corporation in Japan, that existed from 2003–2007, offering postal and package delivery services, banking services, and life insurance. It had over 400,000 employees and ran 24,700 post offices throughout Japan and was the nation's largest employer. One third of all Japanese...
.
National Budget
In the postwar period, the government's fiscal policy centers on the formulation of the national budget, which is the responsibility of the Ministry of Finance. The ministry's Budget Bureau prepares expenditure budgets for each fiscal year based on the requests from government ministries and affiliated agencies. The ministry's Tax Bureau is responsible for adjusting the tax schedules and estimating revenues. The ministry also issues government bonds, controls government borrowing, and administers the Fiscal Investment and Loan Program (FILP), which is sometimes referred to as the "second budget."Three types of budgets are prepared for review by the National Diet
Diet of Japan
The is Japan's bicameral legislature. It is composed of a lower house, called the House of Representatives, and an upper house, called the House of Councillors. Both houses of the Diet are directly elected under a parallel voting system. In addition to passing laws, the Diet is formally...
each year. The general account budget includes most of the basic expenditures for current government operations. Special account budgets, of which there are about forty, are designed for special government programs or institutions where close accounting of revenues and expenditures is essential: for public enterprises, state pension funds, and public works projects financed from special taxes. Finally, there are the budgets for the major affiliated agencies, including public service corporations, loan and finance institutions, and the special public banks. Although these budgets are usually approved before the start of each fiscal year, they are usually revised with supplemental budgets in the fall. Local jurisdiction budgets depend heavily on transfers from the central government.
Government fixed investments in infrastructure and loans to public and private enterprises are about 15 % of GNP
Measures of national income and output
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product , gross national product , and net national income . All are specially concerned with counting the total amount of goods and...
. Loans from the Fiscal Investment and Loan Program, which are outside the general budget and funded primarily from postal savings, represent more than 20 % of the general account budget, but their total effect on economic investment is not completely accounted for in the national income statistics. Government spending, representing about 15 % of GNP in 1991, was low compared with that in other developed economies. Taxes provided 84.7 % of revenues in 1993. Income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
es are graduated and progressive. The principal structural feature of the tax system is the tremendous elasticity of the individual income tax. Because inheritance
Inheritance tax
An inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...
and property tax
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
es are low, there is a slowly increasing concentration of wealth in the upper tax brackets. In 1989 the government introduced a major tax reform, including a 3 % consumer tax. This tax has been raised to 5 % by now.
After the breakdown of the economic bubble
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...
in the early 1990s the country's monetary policy has become a major reform issue. US economists have called for a reduction in Japan's public spending, especially on infrastructure projects, to reduce the budget deficit. To force a reduction of the loan program, partially financed through postal savings, then-Prime Minister
Prime Minister of Japan
The is the head of government of Japan. He is appointed by the Emperor of Japan after being designated by the Diet from among its members, and must enjoy the confidence of the House of Representatives to remain in office...
Junichiro Koizumi
Junichiro Koizumi
is a Japanese politician who served as Prime Minister of Japan from 2001 to 2006. He retired from politics when his term in parliament ended.Widely seen as a maverick leader of the Liberal Democratic Party , he became known as an economic reformer, focusing on Japan's government debt and the...
aimed to push forward postal privatization
Japan Post
was a government-owned corporation in Japan, that existed from 2003–2007, offering postal and package delivery services, banking services, and life insurance. It had over 400,000 employees and ran 24,700 post offices throughout Japan and was the nation's largest employer. One third of all Japanese...
. The postal deposits, by far the largest deposits of any bank in the world, would help strengthening the private banking sector instead.
Budget process
The Budget Bureau of the Ministry of FinanceMinistry of Finance (Japan)
The ' is one of cabinet-level ministries of the Japanese government. The ministry was once named Ōkura-shō . The Ministry is headed by the Minister of Finance , who is a member of the Cabinet and is typically chosen from members of the Diet by the Prime Minister.The Ministry's origin was back in...
is at the heart of the political process because it draws up the national budget each year. This responsibility makes it the ultimate focus of interest groups and of other ministries that compete for limited funds. The budgetary process generally begins soon after the start of a new fiscal year on April 1. Ministries and government agencies prepare budget requests in consultation with the Policy Research Council. In the fall of each year, Budget Bureau examiners reviews these requests in great detail, while top Ministry of Finance officials work out the general contours of the new budget and the distribution of tax revenues. During the winter, after the release of the ministry's draft budget, campaigning by individual Diet
Diet of Japan
The is Japan's bicameral legislature. It is composed of a lower house, called the House of Representatives, and an upper house, called the House of Councillors. Both houses of the Diet are directly elected under a parallel voting system. In addition to passing laws, the Diet is formally...
members for their constituents and different ministries for revisions and supplementary allocations becomes intense. The coalition leaders and Ministry of Finance officials consult on a final draft budget, which is generally passed by the Diet in late winter.
In broad outline, the process reveals a basic characteristic of Japanese political dynamics: that despite the oft-stated ideals of "harmony" and "consensus," interests, including bureaucratic interests, are in strong competition for resources. Political leaders and Budget Bureau officials need great skill to reach mutually acceptable compromises. The image of "Japan Incorporated," in which harmony and unanimity are virtually automatic, belies the reality of intense rivalry. The late-twentieth-century system is successful insofar as political skills and appreciation of common interests minimize antagonisms and maintain a balance of power among groups. It is unclear, however, whether this system will continue as Japan faces such problems as growing social inequality and an aging society
Elderly people in Japan
This article focuses on the situation of elderly people in Japan and the recent changes in society.Japan's population is aging . During the 1950s, the percentage of the population in the sixty-five-and-over group remained steady at around 5%. Throughout subsequent decades, however, that age group...
.
See also
- Defense budget of JapanDefense budget of JapanEven during the Cold War arms race of the 1980s, the Defense budget was accorded a relatively low priority in Japan. According to Japanese security policy, maintaining a military establishment is only one method—and by no means the best method—to achieve national security...
- Ministry of Finance (Japan)Ministry of Finance (Japan)The ' is one of cabinet-level ministries of the Japanese government. The ministry was once named Ōkura-shō . The Ministry is headed by the Minister of Finance , who is a member of the Cabinet and is typically chosen from members of the Diet by the Prime Minister.The Ministry's origin was back in...
- Bank of JapanBank of Japanis the central bank of Japan. The Bank is often called for short. It has its headquarters in Chuo, Tokyo.-History:Like most modern Japanese institutions, the Bank of Japan was founded after the Meiji Restoration...
- List of government bonds
- List of countries by public debt
- List of countries by external debt