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Task 2. Translate the following text

Japan’s economy

Keynes, trains and automobiles

Can a fiscal and monetary splurge reboot Japan’s recessionary economy?

FOR 35 years the steel bolts holding up the ceiling of Sasago Tunnel, on a busy toll road west of Tokyo, were never checked. On December 2nd more than 600 of them had worked themselves so loose that a 130-metre stretch of the roof collapsed, crushing nine motorists.

The disaster played into the hands of Shinzo Abe, who two days later launched his successful campaign to become prime minister partly on a promise of renovating Japan’s rusting infrastructure. As promised, on January 10th Mr Abe approved a massive public-spending bonanza, expected to exceed ¥13 trillion ($150 billion)—more than was spent in emergency measures after the 2011 earthquake, and about 2.6% of GDP.

Much of the cash will go towards making tunnels, railway lines and other infrastructure safer. Those are the sort of public-works projects that Mr Abe’s Liberal Democratic Party (LDP) was famous for during much of post-war Japan’s history. His supporters believe it will help jolt the economy out of recession. Critics argue that it is a rehash of the concrete-slathering policies that helped saddle Japan with the biggest public debt in the world.

It is being accompanied by pressure on the Bank of Japan (BoJ) to print more money to weaken the yen and help exporters, such as Japan’s carmakers and electronics firms. The architect of that policy is Koichi Hamada, a Yale University professor and cabinet adviser who is a former mentor (and recently tormentor) of Masaaki Shirakawa, the governor of the BoJ. The government’s supporters have christened the fiscal and monetary strategy “Abenomics”. But it appears to be ripped largely from John Maynard Keynes.

In principle, there is nothing wrong with the plan, provided that the government’s spending generates higher returns than the borrowing costs. Robert Feldman of Morgan Stanley says that if the money is spent well, on projects like energy-saving technologies, the rewards could be huge, bolstering efficiency and tax revenues.

But if the cash is wasted on projects with no economic merit, it will add to a gross public debt without materially boosting output, raising a debt-to-GDP ratio that already exceeds 200%. Although deficit-financed stimulus is justifiable in the short run, Mr Abe has spoken of the need for ¥200 trillion of public works over the next ten years, with less talk of how to pay for it. Those sums easily exceed the additional ¥12.5 trillion a year that Japan hopes to collect by eventually doubling the consumption, or sales, tax. Mr Feldman notes that in Mr Abe’s campaign documents there was no mention of debt.

For now, the financial markets are happy. In just over a month, the stockmarket has climbed by 10%. It has been pushed higher by a weakening currency, with the yen falling from around 82 per dollar to 88 in the same period. Some of the credit for this may go to the pressure on the central bank, which is expected shortly to double its inflation target to 2% in an effort to forestall Mr Abe’s threat to change the BoJ law guaranteeing its independence. Just as much of a factor, though, is Japan’s current account, which is sailing closer and closer to the red. Analysts say it is likely to deteriorate further because of a burgeoning need for energy imports.

The risk is if government-bond yields rise without an increase in inflationary expectations. The latest stimulus package will reportedly be part-financed by ¥5.2 trillion of construction bonds; the new finance minister, Taro Aso, shows no allegiance to the last government’s efforts to cap bond emissions this fiscal year at ¥44 trillion. Some fret that if the market’s appetite for these bonds weakens, the Abe administration will ask the BoJ to buy them, something it is loth to do under duress.

A bigger concern, however, is that a fiscal and monetary splurge may give the government an excuse to postpone more sensitive measures such as deregulating the economy and opening the country to international competition through free-trade deals. Business leaders hammer away at the urgent need for structural reform. Mr Abe may offer some corporate-tax relief, but frustratingly, he seems keen to wait until after upper-house elections in July before making more progress.

The Economist

Task 3. Render the following text in English

Japan’s trade balance

Seeing red

After half a century of trade surpluses, Japan is now in deficit

IMBALANCES are not for ever. In the 1980s and 1990s, Japan's huge trade surplus was a popular target for American and European protectionists. No longer. Provisional estimates suggest that Japan's merchandise trade moved into the red in 2011—its first annual deficit (excluding freight costs) since 1963. Japan remains the world's biggest net foreign creditor. Income from its assets more than offset the trade gap, keeping its current account in surplus, equivalent to about 2% of GDP (down from 5% in 2007, see chart). That surplus, however, could also disappear within a few years. Is that good news or bad?

Last year's trade deficit partly reflected some temporary factors, notably the earthquake and tsunami which disrupted production and exports. Imports were inflated by higher oil prices and larger imports of energy following the shutdown of nuclear-power plants.

But if, as seems likely, many plants stay closed, future energy imports will remain high. The stronger yen and weak overseas demand will also keep squeezing exports. Until 2009 exports had been buoyed by an abnormally weak yen, as foreign investors borrowed in yen to invest in higher-yielding currencies. But that carry trade has now been unwound as interest rates elsewhere have plunged.

The stronger yen and high corporate taxes are also encouraging manufacturers to shift production abroad. J.P. Morgan forecasts that by 2014, 76% of Japanese car firms' production will be based overseas, up from 49% in 2003. As well as curbing exports, this could also lift imports if some car models are only made abroad.

If Japan's trade deficit widens, the fate of its current-account surplus will depend on foreign-investment income (interest payments, profits and dividends). This rose sharply until 2007 but has since fallen as a result of low interest rates and the global downturn. If firms reinvest more of their overseas profits instead of repatriating them, this might further erode foreign income over the next few years. Even if net income stays constant, Masaaki Kanno of J.P. Morgan forecasts that Japan's overall current account will be in deficit by 2015.

Some economists disagree: global growth and Japanese exports could be stronger than Mr Kanno assumes. But there are powerful structural reasons to expect Japan's current account to move towards deficit. A nation's current-account balance reflects the gap between domestic saving (by households, firms and the government) and investment. Historically, the Japanese were keen savers, with national saving greater than investment. But a rapidly ageing population saves less because people draw down their assets when they retire. The more retired folk there are relative to workers, the lower the saving rate.

Japan's household-saving rate has fallen from 14% of disposable income in the early 1990s to only 2% in the past couple of years. The government's budget deficit (10% of GDP in 2011) also counts as negative saving. The current account has remained in surplus because shrinking household saving has been offset by a surge in corporate saving. Since 1990 Japanese firms have swung from being big borrowers to big savers as they sought to repay debts. Wage moderation and low interest rates lifted their profits, and they invested less.

As the population continues to age, households' saving rate is likely to turn negative. Firms are also unlikely to keep piling up cash as much as they are now. Profits are being squeezed and they may invest more abroad. If private saving shrinks while the government borrows heavily, Japan will inevitably move into current-account deficit and become a net importer of capital.

A shrinking surplus would be good news for Japan and for the rest of the world if it were caused by a strong rebound in domestic consumption and investment. Instead, it mainly reflects weaker exports and higher energy imports, which will bring little benefit to other rich economies. It will also weaken Japan's growth. Over the ten years to 2010, net exports accounted for half of Japan's real GDP growth. To fill the gap, Japan would need structural reform to boost domestic spending.

Even more worrying are the implications for financing Japan's government debt. Its net debt-to-GDP ratio—more than 130% in 2011, according to IMF estimates—is second only to that of Greece. Yet Japanese bond yields are among the world's lowest largely because it has a big current-account surplus and willing domestic investors (unlike other fiscal sinners such as Italy and Greece). Around 95% of Japan's sovereign debt is owned by domestic investors. But if Japan's current account moves into deficit the government will need to rely more on foreign investors, who are likely to demand higher yields.

Catalyst or catastrophe

A sudden rise in bond yields could seriously worsen the government's debt dynamics. A mere one-percentage-point increase in yields would cause the interest bill to double, requiring a bigger reduction in the rest of the budget deficit simply to stabilise the debt-to-GDP ratio. Higher yields would also imply big losses for Japanese banks and pension funds. If banks are forced to cut their lending, this would depress growth and lead to a withdrawal of liquidity from global capital markets.

If, on the other hand, the government takes action to put fiscal policy on a sustainable long-term path by raising taxes and trimming spending, bond yields might rise only modestly. Unlike euro-area economies, Japan's debt mountain reflects low taxation as much as unsustainable spending. The government has ample room to increase taxes, particularly on consumption, but lacks the political will to do so. Indeed, while borrowing costs are so low, politicians have had little incentive to take unpopular action. A serious threat of higher bond yields because of a looming current-account deficit might prod the government to raise taxes and push through structural reforms. If it does not act, a current-account deficit and an unsustainably high public debt are the ingredients of a potentially lethal cocktail.

The Economist

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