Summary

The meltdown of the Japanese financial systems, which is triggered by the sudden decrease of stock prices in the Asian stock markets, is an unprecedented incident for the government of Japan.

The government decided to issue government bonds in the amount of 10 trillion yen and government-guaranteed bonds in the amount of 20 trillion yen. In total, 30 trillion yen is going to be injected in order to save banks. By these measures, the financial crisis was alleviated for a while.

Since the government is adhering to the budget reform, they can not take drastic plans to boost domestic demands. Facing criticism from overseas, Prime Minister Hashimoto is placed in a position to change the budget reform policies. In addition, taking into consideration of the requests made by the United States, Japan has to take some measures to stimulate domestic demands even though unwillingly.

The LDP leaders have announced the change of the government budget reform policies one after another. Since 2 trillion yen corporate tax reduction is insufficient, it was decided that the public investment is increased in the supplementary budget.

However, even if we increase public works, it is still insufficient to boost domestic demands because Japanese, who are troubled by the handling of non-performing loans, can not come up with drastic economic measures.

Meanwhile, the improvement of infrastructure is called for in order to expand domestic demands. In 1992, then Prime Minister Miyazawa committed himself to improve Japanese people's life style. In 1994, the Hosokawa coalition government put emphasis on the improvement of the infrastructure in their budget.

However, the benefits of these policies went to the major construction companies instead of going to consumers. There was no structural change at all.

Even if the government invested on welfare, education, or culture-oriented projects such as parks, sewage and waterworks, welfare institutions and research institutions, the structure in which major construction companies enjoy the profits did not change.

Large-scale projects were canceled because the cut in expenditures was decided in the budget of this year. Public works will be examined more carefully under Hashimoto administration than under other administrations before.

However, we need to re-examine the socio-industrial structure where many industries, in particular, the construction industry, are relying on the government budget. Unless we do not change this structure, we will not be able to boost domestic demands effectively.