The government, panicked by the "large-scale bankruptcies of the week" that began in October of last year, decided on tax cuts without any policy whatsoever. By "without policy," I mean changing their mind from day to day, reducing taxes less than a year after raising taxes by 10 trillion yen in April of last year. But, well, it's good that they admitted their mistake. The problem is that it's "Too Little, Too Late," and at the same time, it's a bit off the mark.
The government is trying to overcome this crisis by implementing the 2 trillion yen tax cut, advancing the budget for next fiscal year, and leveraging the economy with a large supplementary budget, but it remains to be seen whether this will work. The construction industry may be able to take a breather, but this will only be temporary, and for financial institutions, it is far from a fundamental solution.
Yamaichi Securities, one of the four major securities companies, collapsed despite claiming that it was not insolvent. If it really was not insolvent, it would have been natural for it to have survived by receiving some capital from somewhere, given its reputation and operating assets. Nevertheless, it had to collapse because almost no one believed that it was not insolvent. Well, it's no wonder, considering it had hidden more than 4 billion yen of off-book debt for years. In fact, the real problem is hidden here. It is a problem that no one can trust financial institutions, whose business is to sell credit. If this is true even for financial institutions, it must be even worse for other industries. The current recession is a recession caused by credit contraction. In this situation, even if we were to implement a 2 trillion yen tax cut or conventional public investment, it would be like giving a patient with pneumonia an antipyretic, and would be nothing more than a symptomatic treatment. It would not cure the disease, but would only relieve the immediate pain, and the condition would likely worsen.
The correct prescription for the current situation is to restore the lost trust. To that end, I think the best thing to do is to establish a Financial Inspection Agency with the financial resources from the 2 trillion yen tax cut. Of course, the inspectors will not be bureaucrats from the Ministry of Finance. They will be staffed by certified public accountants and analysts recruited from the private sector. With an annual budget of 2 trillion yen, about 2 people can be hired. These will be deployed to thoroughly inspect the Bank of Tokyo Mitsubishi for banks and Nomura Securities for securities. With this many people deployed, the inspections will be completed in no time. Of course, the foci of the problem that have not been visible until now will surface, but the pus can be drained. In this way, the top companies will be brought to a "rising" state one by one. Companies that are "rising" will no longer have to deal with the poor business performance caused by the loss of trust. (Of course, whether their performance recovers or not depends on the management.)
What the government needs to do now is not to make ministries and agencies fill the numbers or to cut taxes. It needs to provide credit in a fundamental sense to Japanese companies that are no longer able to restore their credibility on their own.