Editor's note: Japanese Prime Minister Sanae Takaichi's controversial remarks on Taiwan continue to stir reactions, triggering a ripple effect in the economic realm.
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. Recently, Japanese Prime Minister Sanae Takaichi's erroneous comments regarding Taiwan have continued to escalate. As of now, the Chinese side has taken a series of strong measures, including warning citizens to avoid traveling to Japan and issuing alerts for studying abroad. How will the impact of the related events manifest in the economic domain? Today, we invite Tan Haojun, economic commentator and part-time professor at Zhongnan University of Economics and Law, and Liu Qiang, vice-chairman of the Shanghai Centre for RimPac Strategic and International Studies, to provide analysis and interpretation.
First, we see that tourism is the most affected area. Currently, there has been a surge in cancellations of tours to Japan from mainland China. Some Japanese scholars have pointed out that if the number of Chinese tourists visiting Japan decreases significantly, Japan's GDP will drop by 0.36%, with preliminary calculations estimating economic losses to reach 22 trillion yen. Mr. Liu, what are your thoughts on this figure?
【Liu】If China-Japan relations continue to strain due to Prime Minister Sanae Takaichi's erroneous and very strong statements that are not retracted, it will certainly lead to a substantial decrease in tourists heading to Japan. If we convert that figure into US dollars, it's approximately 14 billion dollars. Is that a small number? For Japan's economy, which is already in a downturn, losing this amount, or even 10 billion dollars, would still be a significant impact. The loss of tourists will also have repercussions for related industries, including accommodation, dining, and others.
【Anchor】OK. Mr. Tan, how do you assess the diplomatic storm brought about by Takaichi's comments regarding Taiwan and its impact on the Japanese economy? In addition to tourism, China is Japan's largest trading partner, the second-largest export destination, and the largest source of imports. In 2024, the total trade volume between China and Japan is expected to reach 308.3 billion dollars, with China's imports from Japan amounting to 156.25 billion dollars. If China's countermeasures escalate further, how should we assess the economic impact on Japan?
【Tan】Although trade between China and Japan began to decline after Shinzo Abe's tenure as Prime Minister, which worsened relations with China, the entrenched trade relationship makes it impossible for Japan to decouple from China. The Japanese side's assessment of the impacts tends to be limited to tourism and shopping. If the Japanese side cannot immediately acknowledge their errors and correct them, and does not retract the erroneous statements, China's countermeasures will continue to intensify. Once these countermeasures extend to the economic realm, the effects will be beyond Japan's control and prediction. Takaichi's actions are undoubtedly extremely damaging to China-Japan trade. It is tantamount to allowing personal actionsto harm national interests, negatively impacting Japanese businesses and residents, and putting a severe brake on the slowly recovering Japanese economy. The interests of Japanese businesses and residents will also be seriously affected.
【Anchor】What does Mr. Liu think?
【Liu】China is currently Japan's largest trading partner, the second-largest export destination, and the largest source of imports. If the relationship between China and Japan continues to remain rigid or even deteriorates, the impact on Japan's economy will be significant, beyond just tourism. China may halt imports of many Japanese products. Additionally, given the current situation with social media, it is also possible that there will be movements to boycott Japanese goods, which cannot be ruled out. This will result in a substantial impact on Japan's economy.
【Anchor】Indeed. When Takaichi Sanae first took office, the market had certain expectations regarding the economic impact of her policies, such as boosting the stock market but being detrimental to the yen's exchange rate. However, last week, Japan saw a "triple whammy" in stocks, bonds, and currency, and GDP fell by 1.8% quarter-on-quarter in Q3. Mr. Liu, do you think the adverse effects on Japan's economy after her election have exceeded previous expectations?
【Liu】This will depend on specific circumstances. Given the significant problems in China-Japan relations, the stock market has begun to decline, but it's hard to say whether she will adopt other economic measures to address these issues. After all, her approval rating is very high—some statistics indicate it is the highest since Hideki Tojo during World War II. Therefore, in order to boost her popularity, it remains to be seen whether she will take measures to stabilize Japan's fundamental economy.
【Anchor】Facing these impacts, we see that Takaichi Sanae met with the Governor of the Bank of Japan last week, and the new cabinet approved an economic stimulus plan amounting to 21.3 trillion yen, approximately 135.4 billion dollars. Does this imply that she will introduce some measures to boost the Japanese economy?
【Tan】Based on Takaichi's admiration for Shinzo Abe, a loose monetary policy may be the most likely policy tool she will introduce. However, practice has shown that Abe's economic policies did not pull Japan out of the economic mire. Takaichi cannot surpass her idol in this regard, nor can she escape the impacts of countermeasures from China. Unless she acknowledges her mistakes and retracts her erroneous statements.
【Anchor】Alright. Besides the effects within Japan, do you think this will spill over to other countries as well?
【Tan】Whether the negative impacts of Takaichi's remarks on Japan will spill over depends on the degree of their impact on Japan. After all, Japan does have interactions with other countries, some of which are significant. There could indeed be spillover effects. However, Japan's economy has not yet reached the level of the US, so the spillover impact will be relatively limited.
【Anchor】Yes, Mr. Liu, how do you view the potential for this risk to spill over in the future?
【Liu】Despite the current environment of anti-globalization, the interconnections between global economies that have emerged from globalization remain extensive. This includes supply chains and other aspects such as products and technology. If significant problems arise in China-Japan relations, the decrease in trade volume, cooperation, and investment may also spill over to other countries, especially those with deep ties to China and Japan.
【Anchor】Indeed, the reason for bringing up the issue of spillover effects is due to the financial forum held in Hong Kong, where many international financial leaders expressed a positive outlook on Asia. However, Takaichi Sanae's comments since taking office have been perceived as offending China, Russia, South Korea, and North Korea. So, would you say this incident could impact the overall Asian market? Could it become a black swan event in the process of the Asian market's recovery?
【Liu】Regardless, Takaichi appeared to be moderating her stance after taking office. For example, she did not attend the autumn Yasukuni Shrine ceremony but instead just made a monetary offering, which seemed like a form of restraint. However, unexpectedly, she made such extremely erroneous and aggressive remarks regarding Taiwan, leading to the current state of China-Japan relations. There are now reports that she might soon visit the Yasukuni Shrine, which undoubtedly adds fuel to an already problematic China-Japan relationship. After all, China and Japan are the first and second largest economies in Asia. If these two countries face issues, it could significantly affect others as well. If the situation deteriorates further or if local conflicts occur, it would indeed be a black swan event. Therefore, where China-Japan relations go from here now largely depends on Japan and how they handle the situation. If not managed well, it could certainly become a black swan event affecting the entire Asian economy or market recovery.
【Anchor】Alright. Mr. Tan, what are your thoughts? Could Takaichi's election become a black swan event influencing the market in the near future?
【Liu】The black swan was already present when Takaichi became Prime Minister. However, this time, the black swan was believed to have limited destructive power, but it unexpectedly emerged in this manner. Thus, it does have an impact on both the Japanese economy and the Asian economy. However, if Takaichi remains obstinate and continues down the wrong path, the pressure on her domestically will increase. After all, for Japanese businesses and residents, a recovery in the economy is essential for improving their lives. Therefore, after a period of upheaval, she may become more restrained under domestic pressure and cautious about making bold moves. Otherwise, her tenure as Prime Minister could be at risk. Thus, while there will be an immediate impact on the Asian market, in the medium to long term, her influence will be very limited.
【Anchor】OK, thank you to all the guests. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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