Japan’s extensive infrastructure casts doubt over targets

TOKYO - Reuters

Highway bridges of the Metropolitan Expressway are seen in central Tokyo. Japanese Prime Minister Shinzo Abe aims to spend more than $100 billion on infrastructure in the next 15 months to help revive his country’s economy. REUTERS photo

Japanese Prime Minister Shinzo Abe aims to spend more than $100 billion on infrastructure in the next 15 months to help revive his country’s economy amid criticisms that say with its gleaming bullet trains, jungles of elevated highways and strings of man-made islands, ultra-modern Japan doesn’t appear to want for much.

“We cannot simply continue to build roads and infrastructure the way we used to at a time when the population is ageing and shrinking,” says Takayoshi Igarashi, a public policy professor at Japan’s Hosei University who has advised the previous Democrat administration on rebuilding from the 2011 earthquake, tsunami and Fukushima nuclear accident. 

Infrastructure spending tops Abe’s economic agenda alongside nudging the central bank into more aggressive steps to end deflation. Since he took power in December, Abe has earmarked 10 trillion yen ($107 billion) for new infrastructure and upgrades over the next 15 months - half of it funded by government debt.

That is equivalent to a quarter of the amount that the Organisation for Economic Cooperation and Development (OECD) estimates the entire world needs to spend on transport infrastructure each year.
Economists warn that, without reforms to lift Japan’s long-term growth potential, more such spending will produce only a temporary jolt that swells a government debt already worth more than double national output.

“The impact should be substantial but also a short-term one,” said Tomo Kinoshita, chief economist at Nomura Securities in Tokyo. Kinoshita estimates that every 10 trillion yen of spending would add only about 11 trillion to GDP. 

10-year plan ‘unrealistic’

Yet the money represents only what Abe hopes to spend by April 2014. He has suggested spending similar sums every year for a decade - if he holds onto power that long. With the private sector and local communities expected to match government investment, this would add up to 200 trillion yen ($2.16 trillion) over 10 years - or roughly 40 percent of GDP.

Abe says the goal is to spur growth and improve Japan’s ability to withstand disasters such as the quake and tsunami that hit Japan in March 2011, killing nearly 20,000 people. Many of Japan’s roads, bridges, tunnels and dams were built during the post-war boom and need fixing, as tragically illustrated in December when a 1970s era tunnel 80 km (50 miles) west of Tokyo collapsed, killing nine people.

Economists also question whether the government could borrow as much as Abe will need. “We should not take the 200 trillion yen figure at face value, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.“I don’t think that’s realistic.” 

Thanks to Japan’s low birthrate, the population is declining by more than quarter of a million a year, government statistics show, with its working-age population shrinking at double that pace. According to Health Ministry projections the number of Japanese is expected to fall by nearly a third, to below 90 million, by 2060.