[Constitutional Amendment, Connecting the Future] "Korea's Crisis Resilience Reviving Economic Sparks, National Driving Force to Overcome Political Turmoil"

Takako Masai, CEO of SBI Economic Research Institute, Japan
"Korea's Experience in Overcoming Economic Hardships Is a Major Asset"

Editor's NoteThe Constitution of the Republic of Korea is the foundation of the nation and the standard of citizens' lives. The '1987 system,' symbolizing the last constitutional amendment, is now being called for change. This signifies the need for new standards to redesign Korea's present and future, considering nearly 40 years of change. For members of the National Assembly and political scientists, constitutional amendment is recognized as an inevitable task of the times. The 'social turmoil' triggered by the emergency martial law paradoxically revitalized the momentum for constitutional amendment. Across the political spectrum and various sectors of society, constitutional amendment has emerged as a key topic of interest. Based on diagnoses from former presidents of European countries that have experienced constitutional amendments, leading political and economic scholars from the U.S. and Japan, the president of the Korean Constitutional Law Association, and former governors of the Bank of Korea, we aim to analyze this era of great transformation and sketch a constitutional amendment suitable for our society.

Takako Masai (政井貴子), CEO of Japan's SBI Economic Research Institute, commented on the December 3 emergency martial law incident, stating, "Although Korea was expected to face negative economic impacts due to political turmoil, it has managed the situation relatively well," adding, "Korea's unique crisis management capability will be a major driving force in overcoming national difficulties."

Masai, a former Policy Board member (monetary policy board member) of the Bank of Japan (BOJ), said in a written interview with Asia Economy on the 5th, "I believe the uneasy global perception, including foreign investors' concerns about Korean democracy and the rule of law, has somewhat eased." She explained that although the won-dollar exchange rate seemed likely to exceed 1,500 won amid heightened crisis sentiment due to political unrest, it gradually stabilized, and the feared sharp rise in exchange rates did not occur.

Masai Takako, CEO of SBI Economic Research Institute, attended the '2024 Asia Financial Forum' held on the 9th at the Chosun Hotel in Jung-gu, Seoul, and delivered a keynote speech on the topic "The Enigma of Deflation: Strategies for Economic Recovery." Photo by Jinhyung Kang aymsdream@

Masai participated as the only female member in the Bank of Japan's highest decision-making body, the Policy Board, in 2016. The Policy Board consists of nine members: the governor, two deputy governors, and six policy board members, all appointed by the Cabinet with the consent of both houses of the National Diet. As a market expert, she worked at Scotiabank and Cr?dit Agricole before joining Shinsei Bank in 2007. In 2013, she became the first female executive at Shinsei Bank and has been active as a financial market expert for over 20 years. Currently, she serves as CEO of the SBI Economic Research Institute, focusing on emerging financial technologies and future research.

"It Is Too Early to Declare the End of Japan's 'Lost 30 Years'"

Regarding Korea's recent situation, Masai said, "Korea has a track record of reviving economic growth in a very short period through national efforts to overcome crises in the early 2000s," adding, "This experience is an asset that will provide strong support when economic management becomes difficult, and a country with such experience is less likely to undergo a 'Lost 30 Years' similar to Japan." While there are concerns that the Korean economy might follow Japan's path of prolonged low growth in the 1% range, she expects Korea to overcome the crisis by learning from Japan's example.

Since the 1990s, Japan's economy had been in a long-term recession, but recent revival has raised expectations for the end of the 'Lost 30 Years.' Masai noted, "Although Japan's economy is making progress toward overcoming deflation, it is still too early to definitively say the 'Lost 30 Years' have ended," diagnosing that "sustained wage increases, sustainable investment, and consumption growth are necessary to overcome deflation." She explained that while signs of inflation driven by domestic demand are appearing, close monitoring of price levels and price-setting mechanisms is essential to fully escape deflation.

Despite Japan's economic recovery and future outlook, Masai pointed out the lack of real wage growth, saying, "Post-COVID-19 economic growth has been supported by a weak yen and inbound consumption boosting export companies' performance," but "wage increases have been limited despite government policies and severe labor shortages."

Masai Takako, CEO of SBI Economic Research Institute, attended the '2024 Asia Financial Forum' held at the Chosun Hotel in Jung-gu, Seoul, on May 9 last year, delivering a keynote speech on the topic "The Enigma of Deflation: Strategies for Economic Recovery." Photo by Jinhyung Kang aymsdream@

She continued, "Corporate profits have increased, but many companies have focused more on internal reserves and shareholder returns rather than wages," adding, "However, signs of change, such as wage increases, are emerging mainly among large corporations, which could eventually spread to small and medium-sized enterprises, leading to real wage improvements." According to the Nihon Keizai Shimbun, the average starting salary of major companies in 2024 is about 240,800 yen, up 8.8% from 2021, surpassing the average wage growth rate of 7.4%. This year, some large companies' starting salaries have entered the 300,000 yen range for the first time, raising expectations for wage increases.

Masai also took a cautious stance on the recovery of Japanese companies' competitiveness. She said, "Although major companies like Sony and Toyota have regained competitiveness, it remains debatable whether Japanese companies as a whole have recovered competitiveness," emphasizing, "It is very important nationally to share the recognition that strengthening corporate competitiveness is crucial, as the government is currently developing various policies based on this understanding." Amid mixed evaluations of 'Abenomics,' the economic policies implemented by Prime Minister Shinzo Abe since 2012 to escape deflation, Masai stated, "Certain achievements have been made through yen depreciation caused by monetary easing and the resulting stock price rise."

"If Japan's Inflation Rate Continues to Exceed 2%, Additional Rate Hikes Will Follow"

Regarding Japan's value-up policies and the stock market reaching a 35-year high, she explained, "The rise in Japanese stocks is largely supported by policy-driven corporate governance reforms targeting companies with price-to-book ratios (PBR) below 1," adding, "Other factors positively influencing this include increased profits of export companies due to yen depreciation and capital inflows from foreign investors."

On the outlook for the Bank of Japan's benchmark interest rate this year, she said, "The Bank of Japan is expected to proceed cautiously with policy changes, so a rapid rate hike is unlikely," but added, "However, if inflation continues to exceed 2%, additional rate hikes within the year cannot be ruled out." Regarding debates over central bank independence, Masai emphasized, "Japan respects the independence of the central bank in the National Diet," and stated, "My personal view on central bank independence is that it is essential to focus on mechanisms that ensure economic growth and sustained wage increases, considering the well-being of the people."

When asked about the yen exchange rate outlook, Masai said, "In the short term, the yen is likely to remain weak, but if the Bank of Japan raises rates or the U.S. lowers them, the yen could strengthen," adding, "However, considering Japan's current account surplus, the yen is unlikely to depreciate significantly in the long term."