IMF cuts Japan growth forecast; issues warning over Abenomics

"If countries could simply print money to pay their bills, why would they bother to sell bonds at all? Why bother to tax? Couldn't the government should simply print whatever money it needs?"

Some countries can, others can't. Greece can't and Argentina mostly cant because their obligations are largely in currencies they don't issue. Japan, USA, Canada, Switzerland, etc. can...and they do.

In the past, gov'ts were constricted by inflation and int. rate fears, but Japan in particuar hasn't experience anything of the sort in 14 years of QE, so it has lots of lots of latitude and just continue going for it.

Govts and central banks have several fiscal/monetary options they use concurrently, and bond transactions are one of them. Taxes aren't only to collect revenue but are used to control inflation and create demand for the currency. If the government gives you a tax bill of 5,000 dollars, you're under legal obligation to acquire dollars: viola, demand has been created for your fiat paper currency, which is handy for the govt since those dollars aren't not backed by gold, etc.

@sangetsu03

Not sure what you're getting at - most bonds aren't held to maturity, they are refinanced away before maturity to take advantage of interest rates, etc.

@JeffLee Agreed, there's a reason why major currencies are USD, EUR, and JPY

Check Benjamin Fulford's report on the relationship between Heizo Takenaka and the March Eleven Fukushima earthquake. According to him, Mr. Takenaka had handed control over the Japan's financial reserves to a handful of American and European oligarchs. It looks to me that Japan's finances are already under the control of few World bankers.

I suggest you read "Who Holds Our Debt" at factcheck. org., rather than posting pure fiction. Plot spoiler: 40% of the US debt is in federal accounts. In Japan, the BOJ is buying 70% of it, while the GPIF is among the other biggest holder.

The bonds are in federal accounts, but who provides the revenue to pay off those bonds? The taxpayers, of course. The BOJ is buying bonds, but those bonds will be paid for in taxpayer money, right? A bond is nothing but an IOU, to be repaid at a later date. The one who pays the bond is the one who is the one who repays the debt, or in effect is the real holder of the debt.

If countries could simply print money to pay their bills, why would they bother to sell bonds at all? Why bother to tax? Couldn't the government should simply print whatever money it needs?

Who trusts the IMF?

IMF members.

Insider traders.

That's about it.

Anyone I missed?

Who trusts the IMF?

"The people hold all debt issued by the government,"

I suggest you read "Who Holds Our Debt" at factcheck. org., rather than posting pure fiction. Plot spoiler: 40% of the US debt is in federal accounts. In Japan, the BOJ is buying 70% of it, while the GPIF is among the other biggest holder.

"Soon the government's debt (our debt) will eclipse the amount of real money that we have. Doesn't this bother you at all?"

"Real money"?!? LOL. What bothers me is that there are people who actually believe this kind of science fiction. Japan is able to issue as much yen as it needs to meet its fiscal obligations. That's why all the doomsday predictions of Japan's debt crisis and hyper inflation haven't happened, and won't happen, and why JGBs are considered by investors as extremely safe, and why the yen remains one of the world's hardest currencies.

In fact it's more like 90%, I believe.

You are right. 39% of JGB's are held by larger Japanese banks, Japanese insurance companies hold 20%, private investor houses and the pension plan hold 10%, 5% are held by ordinary Japanese, and 3% are held by domestic investing groups.

As you pointed out in another post, Japan's "mountainous debt" is held... by the gov't. Shrinking the debt can be achieved simply by swapping assets around. The BOJ maintains its current position so that there's lots of liquidity in the system.

The people hold all debt issued by the government, because they are the ones who have to repay it. The government sells bonds because it does not have enough cash on hand to fund a project or program, selling the bonds allows them to raise the money they immediately need. The bonds have a long maturity period, which allows the government time to collect enough tax revenue to pay the face value of the bond, plus whatever interest is added to it. Even if the government sells bonds to itself, these still have to be repaid with revenue from the taxpayers. The taxpayers, you and I, hold the government's debt, because we, not the government, have to repay it. As for asset swaps, the government has no assets, all assets nominally belong to the people. Banks can play shell games with private assets, any government which does the same with public assets should be overthrown. Japan's debt vs GDP ratio is 242%. Bank deposits equal 261% of GDP. Soon the government's debt (our debt) will eclipse the amount of real money that we have. Doesn't this bother you at all?

Be my guest. So what's the figure and how did you get it? Have you got a formula in your pocket? LOL.

Let's see, last year Abe's government increased spending by over 16%, the largest one-time increase in Japanese history. Much of this was spend on stimulus projects, and the sales of material and labor to the government increased GDP. Looking at last year's GDP growth, and subtracting stimulus spending one gets a net growth figure of about .2%. This of course is using "official" figures, which tend to be optimistic.

Well, I would argue that without Japan, TPP loses quite a bit of credibility.

Japan was never intended to be part of TPP, the treaty was originally formed without Japan being involved. On could more easily argue that TPP lost credibility the moment Japan became a part of it.

Abenomics's allure stemmed from long awaited structural reforms. QE and dismal fiscal spending is far from enough to pull Japan out. The Japanese equity market is limp along with quality demand side inflation. It's no surprise as foreign investments flee

The rising of the consumption tax has a negative triple effect, raising the cost of living, increasing the cost of running a business, and most of all has a debilitating effect on consumer spending, a triple whammy on growth . A survey from the Bank of Japan showed that many Japanese firms are lacking the feel good factor, bemoaning a possible smothering effect brought on by these tax hikes.

There is good news though, the government may not have implemented the necessary structural reforms, but the announcement of six special economic zones, and the promise of wholesale deregulation will enable companies to take steps that many politician refuse to endorse for the country as a whole. A closer look confirms these zone account for almost two-fifths of Japan’s GDP.

In one zone there is a proposal that the local agricultural committees will be able to block large companies from trading inside the zone so reining in the restrictive practices associated with farming industries. But the ever present cold hands of bureaucrats are still present resisting and watering down deregulation, hiding behind hedgerows armed with their pencils and clip boards.

IMF are not the be all and end all either it's dogged inflexibility on government borrowing, higher taxes, and economic intervention can make the matters worse and the IMF ideas on free market reforms far too interventionist.

"every Central bank is a privately run company - they are not owned or run by any govt."

That's hilarious...and wrong. The BOJ is majority owned by the gov't, and it's governor is appointed by the Diet. As it sets the nation's monetary policy, it is a public - but not political - institution.

"Subtract government spending from this figure..."

Be my guest. So what's the figure and how did you get it? Have you got a formula in your pocket? LOL.

"All of the liquidity added to the economy by printing out money has done nothing..."

You clearly don't know the difference between liquidity and cash. BTW, what happened to all the "hyper inflation" predictions?

Only Obama wants Japan involved in TPP, neither the Replublican nor the Democrat party want Japan involved. The other counties in the agreement don't care to have Japan involved either. Japan wants to be involved only to the extent that they can get lower tariffs on their own goods, without having to decreas tariff and not tariff barriers on anyone elses.>

Well, I would argue that without Japan, TPP loses quite a bit of credibility.

Here's hoping Japan can get a good deal out of this...TPP's "structural changes" to universal health-care scare the heck out of me.

30 dollars for a bad of rice is too expensive!

It's even expensive for GOOD rice!

Never forget that every Central bank is a privately run company - they are not owned or run by any govt. Govt are beholden to them as they produce the money the govts need to run their country. Every govt that suffers a central bank can never ever pay back the debt htey borrow from the central banks.

Never forget that the IMF is the "Central Bank of Central Banks" Again it is it a privately run company with no govt ties. It has laws unto itself. One of the most evil entities on the planet and the only reason it bothers with 99.9% of the population on earth is to rip out the tax dollars and ensure they flow to the other 0.1%

It's the biggest money laundering process on the planet

30 dollars for a bad of rice is too expensive!

It's hilarious when the cheerleaders here of the bumbling and inept ABE rail against the IMF as if it's a outside entity that has no connection to Japan whatsoever. A quick Google would educate you misinformed ones to the simple fact that Japan is a member of the IMF, indeed its second most powerful member in terms of voting rights and financial contributions. Everything the IMF does, Japan approves and funds. It's not some conspiratorial group "foisting" itself upon Japan, people! It hasn't even done anything here in this case beyond make an accurate analysis: what we've seen thus far from the vaunted "Abenomics" has amounted to nothing more than a hard-sell political and economic CON-JOB!

The IMF is simply pointing out what all the Abe-cheerleaders here and in Japan's emasculated news media refuse to say: unlike Abe's hand-picked stooge over at the Bank of Japan, most economists think that Japan's monetary easing, when coupled with the unfortunate consumption tax increases "foisted" upon a rapidly aging, yen-pinching and increasingly pessimistic consumer population, will NOT lead Japan "bounce back" come this summer, but will in fact help steer the economy back to the very same debt-riddled 1% growth rate that had been already taking place for 20 years before the snake-oil salesman Abe ever promised his way into power!

So go ahead~ignore the IMF's rather sound analysis of Japan's long-term shift from "irrational exuberance" and-debt-fueled annual consumption growth into a pension-sucking, offshore-relocating, bureaucratic-expanding, income-widening, debt-exploding, military-spending and population-shrinking flat-liner of an economic power, but at least have the sense to know that both you and Japan do so at this country's peril.

sangetsu03,

Japan's debt is NOT held by the governemnt.

He seems to believe the BOJ is the government. I also get the impression that he sees no impact to the value of the yen from the BOJ playing games in that space.

Yen is just paper at the end of the day, it only has value because people believe it does.

Until they don't anymore. Even if folks in Japan still believed in it, foreigners at least could easily take a different view. One shudders to think how the Japanese populace would fare in that situation, given the heavy reliance on imports. (At least exports would go gangbusters, but there'd be hard times for sure.)

JGB's are sold in the bond market, 80% of these bonds are sold in Japan,

In fact it's more like 90%, I believe.

Part of me wants to say "I told you so."

So I will. Japan needs real, structural economic and labor reform. Petty monetary games and public projects failed 15 years ago, they'll fail again now.

If PM Abe didn't want Japan in the TPP then he wouldn't have ordered the government to join negotiations back in January 2013.

Abe wants to join the TPP because he sees it as:

A way to better tie together US/Japan interests A mechanism by which to use gaiatsu to force structural changes on Japan A way to make Japan become a member of a giant trading block that would mitigate China becoming the world's biggest economy in 10-20 years

The above considerations haven't changed: Japan is just trying trying to wrangle out better concessions from the US, and the EPA with Australia is just such a negotiating weapon.

At the end of the day, Japan knows it has to be a member of TPP, or China will steam-roller Japan.

sangatsu, link on the 80% figure, please. 95% of Japanese bonds are held domestically. Also, we must remember that while the yield on 10 year bonds are 0.7%, Japan is lending to other countries for much higher margins (1.6% to the US). Japan has 300,000,000,000,000 yen in foreign bonds.

http://www.webofdebt.com/articles/mythjapan.php

You mean positive growth after many years of stagnation?

Last year's "growth" turned out to be .7%. Subtract government spending from this figure, and it becomes negative.

As you pointed out in another post, Japan's "mountainous debt" is held... by the gov't. Shrinking the debt can be achieved simply by swapping assets around. The BOJ maintains its current position so that there's lots of liquidity in the system.

Japan's debt is NOT held by the governemnt. JGB's are sold in the bond market, 80% of these bonds are sold in Japan, most are held by Japanese "mega" banks. All of the liquidity added to the economy by printing out money has done nothing but create an asset bubble, which has inflated stock values, but added no net value.

Yes, we are seeing post-2008 recovery globally in the developed world, as the data clearly shows. The anti-Obama and other types, however, are spinning the lie that things are getting worse. This attitude is fueled by resentment over their discredited pro-austerity worldview

No, we are not seeing any form of recovery in any part of the developed world. What we are seeing are policallly-fudged numbers on everything from unemployment, to revenue, to GDP. The growth predicted by Obama and other leaders has not been realized. Last year's growth was 1/4 what was predicted, unemployment is several points higher than predicted.

Could it be that this Washington based organization is attempting to put pressure on Japan so that it disregards the fundamental issues it has with the TPP?

Only Obama wants Japan involved in TPP, neither the Replublican nor the Democrat party want Japan involved. The other counties in the agreement don't care to have Japan involved either. Japan wants to be involved only to the extent that they can get lower tariffs on their own goods, without having to decreas tariff and not tariff barriers on anyone elses.

Why do I get the impression this is to put pressure on Abe to sign the TPP as soon as possible? The TPP is supposed to make extremely significant structural based changes to the economies of the Pacific Rim...the US TPP negotiator is visiting Japan since two days ago...and Japan just signed a deal with Australia giving it the upper hand in TPP negotiations...hmmm

Could it be that this Washington based organization is attempting to put pressure on Japan so that it disregards the fundamental issues it has with the TPP?

Not trying to be a conspiracy theorist, but lets not pretend that the world isn't the place it is.

Arrows #1 and #2 are unqualified successes in doing what they were supposed to do: Stop deflation.

Abe never claimed that arrows #1 & #2 would not give birth to its own bad child: Inflation (which is really, just a mirror image of deflation). What the IMF was railing about was Arrow#3: Structural changes in the economy. There are several lines to this criticism;

Either the structural changes aren't happening at all, OR The changes are happening are insufficient, OR The right changes are happening but they aren't happening fast enough.

I am firmly in the 3rd camp. Jesper Koll might be panned as the eternal optimist but I see no logical jumps in his arguments in http://thediplomat.com/2014/04/koll-japan-economic-recovery-on-track/

In fact, I would prefer that the changes happened faster, but as long as the right changes are put into place Japan can survive these structural changes being a few years belated.

Do not forget that the IMF is a U.S. controlled institution.To force Japan on the TTP and facing resistance it is now using the IMF to achieve this goal. Do not be too trusting of the white men.

"I'm one of the many that saw this coming as soon as the plans for Abenomics were announced."

You mean positive growth after many years of stagnation?

"Japan's mountainous debt burden won't shrink."

As you pointed out in another post, Japan's "mountainous debt" is held... by the gov't. Shrinking the debt can be achieved simply by swapping assets around. The BOJ maintains its current position so that there's lots of liquidity in the system.

"Things are getting better world wide"

Yes, we are seeing post-2008 recovery globally in the developed world, as the data clearly shows. The anti-Obama and other types, however, are spinning the lie that things are getting worse. This attitude is fueled by resentment over their discredited pro-austerity worldview.

“Implementation of the remaining two arrows of Abenomics—structural reform and plans for fiscal consolidation beyond 2015—is essential to achieve the inflation target and higher sustained growth.”

Simply wishful thinking. Remember back a decade ago when Koizumi used all his political muscle to push through a reform of Japan Post. As soon as he left office, it was all un-done. Too many special interests and a reliance on consensus management means reforms that actually hurt someone will never happen.

Great statement from the same organization that commended Japan on its sales tax increase!

JT should publish the whole article, that would show Japan is not the center of the IMF statement.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11235009

Things are getting better world wide, Japan does have a chance if it implements the right changes and follows through with its plan, if it falters things could wind up in bad shape though.

The consumption tax rise "is seen as crucial to shrinking Japan’s mountainous debt burden"?

This is nonsense. Japan's mountainous debt burden won't shrink. It'll just grow a little more slowly. As Fujimaki said in parliament the other day, if you weigh 100 kgs and instead of increasing to 120 kgs, only increase to 115 kgs next year, it doesn't mean you are on the way to being more healthy. You need to go from 100 kgs to 99 kgs next year before you can really claim to have made any progress.

“Longer-term stagnation risks are present primarily because of the sizable fiscal consolidation that will be needed during the next decade or so to ensure the transition to a sustainable long-term fiscal position in a rapidly aging society.”

The current Japanese government will never do what is necessary to deal with this problem. Procrastination is one of the unfortunate negative traits of Japanese society.

Japan has done better than most of the world

Are you sure about this? It has the world'd largest public debt (double the US), a failed pension system, an ever expanding class gap, it's rife with governmental corruption and cronyism and an economy that has stagnated for over twenty years. Maybe Japan has done better than Spain, but that is hardly 'most of the world'.

Listening to ANYTHING the idiots from IMF say is the first indicator of cluelessness. Abenomics is fatally flawed at its most basic level and only gets worse from there. Batten down the hatches and prepare for heavy seas. We in Japan are in for an especially bad patch in the near future.

I'm one of the many that saw this coming as soon as the plans for Abenomics were announced. How anyone could have thought this would work didn't understand Japan.

a mixture of big government spending and central bank monetary easing dubbed Abenomics, which is designed to drag the economy out of years of deflation and laggard growth.

print money...spend money

the sheer geniusness is baffling to the poor common man on the street!

Any country that has the obligation to listen to IMF and world bank is never going to be independent and free. Japan has done better than most of the world and it should not listen to the club run by the hundred or so world richest oligarchs. Decrease the salaries, increase the taxes and increase the unemployment is their perpetually enforced policy on every country and it only makes rich richer and hungry hungrier. While this makes the rich richer the countries all around the world are more more indebted to this rich mafia. There is no natural conditions for perpetual growth and only the growth in population justify the expectation to have economy growth in accordance with the population increase. But the growth insisted on by IMF is not a logical or naturally conditioned growth but rather manipulated growth with only purpose to artificially increase the value of the stock market and create the imaginary wealth for the ever gambling small segment of lazy, greedy and decadent part of the human society. While Japan is not the paradise it is still like a cherry blossom garden in the mid of the thorny wilderness.

When the ship is sinking, you start to chuck over the side the things you don't absolutely need.

It seems like there is an awful lot of dross in local and national government that could be tossed in the ocean and not be missed.

As a rule of thumb, how about cutting back on things that don't produce income.

Do-less buchos and shachos who draw a high salary and accomplish nothing. Military hardware that produces nothing. Public works projects like the useless and extremely expensive new road and tunnel from Naminoue to Naha airport.

Japan exports more, it gets more income.

Beef up Japan's ability to export and money will come in.

Reforming the labour market is the key that opens the door to sustainable long-term growth and until Mr. Abe and his colleagues do something about that, no free trade agreement will really help.

I'm not sure the increase to 10% is going to go well with the public, doubling the consumer tax in 2 years is risky especially of companies aren't following suite with increased pay. I'm curious to see where this goes and what effects the Trans-Pacific Partnership will have on the economy, that is if Japan gets around to going through with it.

Growth cut : from 1.7 to 1.4 to less than 1.0% at the end of the day !

Japan has long been accused of protecting its domestic industries Japan is a sovereign country. It can do what it wants. It gets the benefits and suffers the consequences.