Naoto Kan, 63, is the latest prime minister to take a turn in the revolving door of Japanese politics after his deeply unpopular predecessor, Yukio Hatoyama, quit the post after less than 10 months in power. The quicker than anticipated handover is a chance for Japan to end a spending spree that is pushing the industrialised world's most indebted nation closer to insolvency.
The scale of Japan's overspending is immense. Dwindling tax revenue and costly election promises resulted in Mr Hatoyama this year committing his administration to borrow about US$500 billion (Dh1.83 trillion) to pay for his plans. The lending is equal in value to one-and-a-half times the Greek economy.
Japan's national debt, at near double GDP, amounts to more than $70,000 for every one of its citizens. Measured in ¥10,000 (Dh400.75) notes laid end-to-end, it would stretch to and from the moon at least 20 times.
The tighter stance on debt adopted by Mr Kan, therefore, is a relief. He is promising a timetable to cut borrowing and, unlike the spendthrift Mr Hatoyama, recognises that raising the nation's 5 per cent sales, or value-added, tax is inevitable. He also seems ready to halt plans to double a $140-a-month child benefit implemented by Mr Hatoyama's government at an annual cost of $22bn.
Japanese voters seem happy with the change in policy. In a poll published yesterday by the Asahi Shimbun, the nation's second-biggest daily newspaper, 43 per cent of respondents said they would support Mr Kan's Democratic Party of Japan (DPJ) in elections to pick lower house politicians on July 11. That support level compared with only 18 per cent who said they were ready to vote for the ruling party just before Mr Hatoyama quit.
Yet it would be a mistake to confuse Mr Kan for a fiscal conservative. He may seem a belt tightener compared with Mr Hatoyama, but he is not the spending hawk Japan needs.
So far, Mr Kan's modest proposal is to keep new borrowing under the record $500bn planned this year. Instead, he should reinstate a $330bn cap on new government bond issues imposed in 2001 by Junichiro Koizumi, the last prime minister to remain in office for more than a year. To do so would probably mean having to cut Mr Hatoyama's child allowance altogether. Neither could Mr Kan be timid about increasing Japan's sales tax. Each percentage point would add an estimated $28bn to state coffers and doubling the rate to 10 per cent or even tripling it to 15 per cent would go a long way in helping Japan to balance its books.
But no matter how bold Mr Kan wants to be, his party may not be as willing to embrace austerity. Mr Hatoyama resigned from government, but remains an influential member of the DPJ, a group he helped found. Mr Kan's choice of ministers, largely unchanged from Mr Hatoyama's cabinet, also suggests continuity rather than change.
Mr Kan has been head of the DPJ twice before, which means he is unlikely to bring many new ideas to the leadership post. He last resigned in 2004 over missed state pension contributions, shaved his head, donned Buddhist robes and set out on a pilgrimage to temples in western Japan.
So, Mr Kan may take his time tackling Japan's debt. The Asian economy's $15tn household asset cushion, after all, means most Japanese government debt is absorbed at home, letting it slip longer and deeper in debt than any European nation could. Yet, if Mr Kan does not act now, in five or 10 years the possibility of Japan's sovereign bankruptcy may not seem so far fetched. The crisis that engulfed Greece threw the EU into panic, wiped billions of dollars off stock values and raised a question mark over the global economic recovery. Any crisis of confidence over Japan's ability to pay back its loans would rip through global markets like a tsunami - a legacy Mr Kan or any other Japanese prime minister will want to avoid.
business@thenational.ae
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If you go...
Fly from Dubai or Abu Dhabi to Chiang Mai in Thailand, via Bangkok, before taking a five-hour bus ride across the Laos border to Huay Xai. The land border crossing at Huay Xai is a well-trodden route, meaning entry is swift, though travellers should be aware of visa requirements for both countries.
Flights from Dubai start at Dh4,000 return with Emirates, while Etihad flights from Abu Dhabi start at Dh2,000. Local buses can be booked in Chiang Mai from around Dh50
The specs
Engine: 2.7-litre 4-cylinder Turbomax
Power: 310hp
Torque: 583Nm
Transmission: 8-speed automatic
Price: From Dh192,500
On sale: Now
MATCH INFO
CAF Champions League semi-finals first-leg fixtures
Tuesday:
Primeiro Agosto (ANG) v Esperance (TUN) (8pm UAE)
Al Ahly (EGY) v Entente Setif (ALG) (11PM)
Second legs:
October 23
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Fixtures and results:
Wed, Aug 29:
- Malaysia bt Hong Kong by 3 wickets
- Oman bt Nepal by 7 wickets
- UAE bt Singapore by 215 runs
Thu, Aug 30: UAE v Nepal; Hong Kong v Singapore; Malaysia v Oman
Sat, Sep 1: UAE v Hong Kong; Oman v Singapore; Malaysia v Nepal
Sun, Sep 2: Hong Kong v Oman; Malaysia v UAE; Nepal v Singapore
Tue, Sep 4: Malaysia v Singapore; UAE v Oman; Nepal v Hong Kong
Thu, Sep 6: Final
Israel Palestine on Swedish TV 1958-1989
Director: Goran Hugo Olsson
Rating: 5/5
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
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