Kan's Stimulus Plan Won't Halt Japan Deflation, Meiji Yasuda's Kodama Says

Japanese Prime Minister Naoto Kan’s 5.1 trillion yen ($62 billion) stimulus plan won’t solve a mismatch in supply and demand responsible for the nation’s falling prices, according to Meiji Yasuda Life Insurance Co.

Japan suffers from low growth and deflation because its supply structure hasn’t caught up with changes in demand, said Yuichi Kodama, chief economist at Japan’s third-biggest life insurer, which had 25 trillion yen ($306 billion) of assets in its general account at the end of March. Domestic sales at automakers and other manufacturers are bound to decrease as Japan’s society ages and the number of working households dwindles, he said.

“Fiscal stimulus won’t be able to solve this type of problem and isn’t the right prescription," Tokyo-based Kodama said. ‘‘Japan doesn’t need a 5 trillion yen extra budget.”

Kan’s cabinet last month endorsed the stimulus plan to safeguard an economic recovery and help local governments and small businesses cope with the surging yen.

The government plans to cap annual spending at 71 trillion yen over the next three years and keep fiscal 2011 bond sales below this year’s 44 trillion yen, according to its fiscal strategy released in June. It will likely have difficulty meeting the target next fiscal year, Kodama said.

Japan needs to focus on easing regulations, opening its market and changing its supply structure, Kodama said. There is demand worth several trillions of yen lying untapped in markets such as medical and welfare services, which are blocked to private companies due to regulatory hurdles, according to the economist said.

To contact the reporter on this story: Yumi Ikeda in Tokyo at yikeda4@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at Rswift5@bloomberg.net.

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