The Nikkei Global Management Forum 2007, “Corporate Management Challenges New Targets,” was held on October 29th-30th, 2007. This year’s forum featured leaders of some of world’s most prominent enterprises who discussed their strategies on how to address global competition. Professor Daniel Okimoto, the Chairman of the Sterling Stamos Global Institute and Asia Strategy Group, was featured on “Yuro Express” following the conference. Please see below for the translated transcript.

Anchor: The Nikkei Global Management Forum opened today. “Yoru Express” was able to interview one of the key figures of this Forum.

One of the organizers of the Nikkei Global Management Forum, Professor Daniel Okimoto is the Director Emeritus of the Shorenstein Asia-Pacific Research Center of Stanford University. He is involved in a range of fields, and his current titles include; Board Advisor to the Development Bank of Japan and Consultant to the Boston Red Sox. Professor Okimoto has been assigned the important role of overall moderator for this year’s Nikkei Global Management Forum, titled “Corporate Management Challenges New Target.” We asked him his views on the global economy.

Q: Can you share us your views on the global economy? Have your views changed since the issue of the sub-prime mortgage crisis arose?

Okimoto: Today, the world economy or GDP of all countries put together is maybe 52 trillion dollars. However, global liquidity is 518 trillion dollars or more, perhaps, 520 or 530 trillion dollars. So there is a huge gap between the GDP of goods and services and world liquidity.

The sub-prime mortgage problem is actually small compared to the 520 or 530 trillion of GDP – probably around 1 trillion dollars, but it has shaken the whole system. This happens when there is excess liquidity, and when the bubble balloons there is a danger of it popping.

Q: Nevertheless, there are also very healthy indices and revenue figures, which seem to indicate that the economy is not that affected by the sub-prime mortgage problem. What is your view?

Okimoto: Yes, that is a curious paradox. The amazing thing about the world economy over the past 5 years is that you’ve been able to combine rapid growth, high employment and low inflation. There are a lot of reasons for that, but is it sustainable? That is the question. Another key question is: Can inflation continue to be low? But energy prices are at 88 dollars per barrel and the prices of commodities and raw materials continue to rise. So there is upward pressure for inflation. The other key concern is that of foreign exchange. There’s a tendency for foreign currencies to be misaligned. Laden with these tensions and problems, we can see the reason why the global economy is now in the midst of this sub-prime mortgages crisis.

Q: So, when do you see the American economy recovering?

Okimoto: Well, it’s hard to tell. My view is that the crisis of the credit crunch and the sub-prime mortgages crisis have not been resolved. It will take time. Major League Baseball has closed its season with the Red Sox becoming the world champion, but the US economy, in terms of baseball, is still in the 5th or 6th inning of a 9-inning game. Maybe an extra inning game. That means, there will be more painful adjustments to be made. Looking at the markets right now, there is a lot of nervousness, because people are afraid that there will be a hard landing, and my guess is that central bank interest rates will come down again, by 0.25% and then again by 0.25% probably more. Then the markets may stabilize. And if they have stabilized, they’ll gradually raise again.

Anchor: This sub-prime mortgage problem doesn’t seem to be a textbook situation, making it difficult to analyze. What’s your view, Mr. Shimizu?

Shimizu: I also share the same cautious view towards this sub-prime mortgage crisis and the American home market that’s been affected by it. As Dr. Okimoto has just mentioned, America will probably further cut interest rates so I should think that policy authorities around the world are also looking at this with caution. I feel that it would be hard for Japan to raise interest rates this year.

Anchor: I see. So let’s hear Professor Daniel Okimoto’s view on Japan and the Japanese economy.

Q: Leaving aside the sub-prime mortgage problem, I feel that Japan will face challenges in terms of global competition, because there are people who say that China’s GDP will exceed that of Japan by 2015 and that India’s GDP will also exceed that of Japan sometime after that. How can Japan become more competitive? In other words, what do you think Japan needs in order to grow?

Okimoto: 56% or 58% of Japan’s GDP is comprised of personal consumption. If this rose to, say, 75% - not 80% like in the US – but 77%, 78%, Japan’s economy should be able to sustain economic growth. However, while Japan has a competitive and efficient export-oriented sector, its domestic-oriented sector is less competitive and less efficient. So I think Japan will have to find ways to raise productivity and competitiveness in these domestic-oriented sectors of the economy and raise them to international standards. And it has to continue to climb up the ladder of value. If this happens, then there is confidence in the future of the Japanese economy.

Anchor: He mentioned the idea of raising personal consumption to the levels of Europe and America, as well as improving inefficient domestic sectors. That’s easier said than done, isn’t it?

Shimizu: Well, yes. As Dr. Okimoto said, it’s personal consumption or household consumption. The corporate sector is doing fairly well, however that hasn’t spread to the household sector, so what Dr. Okimoto just pointed out is true, in that the Japanese economy needs to solve this issue. But then, how to regain competitiveness, including household consumption, that’s a difficult issue. The Fukuda administration is sometimes seen as tending to go against reforms, so I would say that in order to strengthen competitiveness, it is imperative for the current administration to carry out reforms in a broad sense.