As they are not able to count on the government to make good on pension promises, their behavior in not responding to fiscal stimuli is rational. Japanese consumers are earning a near zero rate of return on their assets, especially the several trillion dollars locked up in the postal savings system. The only way to accumulate additional wealth is to save more out of current income. This is in stark contrast to the U.S., where the personal savings rate has declined but people are wealthier because of tremendous returns on real and financial assets. Obuchi's Challenge Prime Minister Obuchi must move quickly to restore consumer and investor confidence by laying the foundation for sustained long-term growth.
Growth is the key, the only way out of the hole Japan has dug for itself.
Half-hearted measures to try to appease both domestic constituencies and international financial markets will not get the job done. In this latter regard, action must match the rhetoric. The announced plans to tackle the banking sector woes are fine, as far as they go. The key is how these measures are to be implemented, and who will do the implementing. Any signal that it's business as usual with the same bureaucrats running the show and the old convoy system still in effect means that all bets are off.