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Japan's economy grows 1.6% in January-March

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Yeah, that's the first quarter before the sales tax hike. It just means that consumers were (and still are) wary of the effects of the sales tax hike. I love the way they keep promoting the sales tax hike as a way of decreasing the public debt, but a 3% increase has resulted in a drop of sales of up to 20% in department stores. You don't have to be an economist to figure out it is a huge fail! I have no doubt the figures for the next quarter will show negative growth.

2 ( +6 / -4 )

Disillusioned,

Yeah, that's the first quarter before the sales tax hike.

Apparently most of the upward revision in the growth estimate was due to a larger rise in business investment than initially estimated. If the sales tax hike was going to destroy the economy, businesses wouldn't have been increasing their investment, I believe.

I love the way they keep promoting the sales tax hike as a way of decreasing the public debt

Well the government says it's to pay for social insurance programs. But others do think tax hikes are required to bring public debt under control (or try to). (This tax hike isn't anyway enough to actually do that though, it's a drop in the bucket.)

I have no doubt the figures for the next quarter will show negative growth.

Well sure. What matters is what happens in the quarters after that.

-1 ( +4 / -5 )

Perhaps this is the first and final positive growth for the year 2014-15 !

3 ( +7 / -4 )

If the government wants to rein in the public debt, it has to cut spending, not raise taxes. An increase in the sales tax may not "destroy" the economy, but it won't help solve deflation, or get the economy growing again either.

Combined with stagnant incomes, and higher costs on energy, food, and transport, the sales tax increase will do more long-term harm than good. People will save more money, not buy more goods and services.

Value-added taxes hurt the working poor, and ultimately, do not necessarily lead to lower sovereign debt. Look at Europe, Canada, the US, and other developed countries. All have VATs, some higher than 20%, but have seen their debts rise.

Abenomics is the very definition of poor public policy.

4 ( +6 / -2 )

This is not a good number, it is shockingly bad. Despite the huge increase in shoppers expected to spend their money prior to the April 1st tax hike, first-quarter growth turned out to be a palty 1.6%? Abe must have had to change his underwear aftwr he heard that figure.

And with growth of only 1.6% in pre tax-hike spending, what can we expect the numbers to be for the second quarter? And what can we expect for the rest of the year? And the years after?

America's economy shrunk by 1% in the first quarter, and Europe is stagnant. So despite trillions of dollars, euros, and yen to "jump start" the world's economies, what have we got to show for it? Other than trillions of dollars, euros, and yen charged to the taxpayers?

1 ( +6 / -5 )

all going in the "right direction" due to flood of stimulus and weaker yen. Turn on the nukes and things will be ven better. Assuming growth is all we care about. But all of this will end with a way weaker yen and way higher interest rates (at some stage - who knows how long the current delusion can last)

2 ( +3 / -1 )

Japan’s economy saw its strongest expansion in more than two years during the first quarter of 2013

I assume this actually refers to the first quarter of this year, not last year.

I would be more curious to see numbers from after the sales tax increase. I'm curious how the government thinks they're going to get more money from taxes if less people spend because of higher taxes.

4 ( +4 / -0 )

JB,

If the government wants to rein in the public debt, it has to cut spending, not raise taxes.

They'd probably need to cut spending by about 75% to put the debt on a downwards trajectory. With demographics pushing up government spending as it is, the option alone is unlikely to cut it, methinks.

True that the tax isn't going to help growth, but I believe the negative effects of the 3% consumption tax rate could be more than countered if the government were to adopt some growth positive policies (for a change - still waiting for Abe's reforms). This is what really matters most of all.

I don't agree people will save more money as a result. What's the point of that? It'll be taxed even if they spend it later, and under the 2% inflation target of Abenomics, people are better to do something else with their extra money, such as invest it, rather than watch it decline in value each year. (Long run, people investing more than just saving might be better for the economy, too.)

As for those who are on really low incomes, government should provide a safety net, but it can't do nothing just because a given policy might negatively effect such people. Most people in Japan will manage to pay the extra consumption tax just fine, I believe.

Other countries with consumption taxes do have problems on the spending side of the ledger too, but even still, they all put Japan to shame in debt terms.

sangetsu03,

not a good number

Aw come on, 1.6% for a quarter in Japan (this isn't China) is pretty good, isn't it?

All the debt-inducing stimulus spending has been a bit of a failure though, agree with you there. You'd think the world could have learned from Japan's failed experiment in this area over the past couple of decades, but it seems everyone wants to become "like Japan" these days.

0 ( +1 / -1 )

It would be interesting to see the next figure release when the new sales tax fully implemented.

0 ( +0 / -0 )

slumdog,

I would be more curious to see numbers from after the sales tax increase.

Presumably we'll need to watch for a couple of quarters. April will be especially poor, I imagine, since people bought extra beer etc in March. But by the time the 3rd quarter number comes out April will be gone and people should be back into a rhythm again.

I'm curious how the government thinks they're going to get more money from taxes if less people spend because of higher taxes.

People still need to pay for food, power, gas, water, transport, health care, haircuts, etc. (OK, maybe not that last one!) The discretionary spending might suffer for a little while, but if we put things in perspective, a meal at an izakaya of 5,000 was 5,250 yen before the tax increase, 5,400 yen after. A 150 yen difference. If people are doing their maths they might decide to not have the meal at the izakaya after about 30 of them (5,000 / 150 yen). But I just can't see this being the case for all that many people.

-3 ( +0 / -3 )

fxgai

You're assuming that there's no waste in government spending. When I say cut spending, I mean wasteful spending. The government will never pay down the debt if it continues to borrow more cash that it pulls in. Whatever extra (short term) revenue the increase in the sales tax brings in, will be lost if the government keeps spending too much money.

People can save money in other ways besides dumping their cash in a bank (which is a waste in Japan). They could hold off on large purchases, hold out for sales, cycle to work more, etc. On basic goods and services, yes, people can probably get by, even at 10%, but getting by, and being prosperous are two different things.

With no cuts in income tax, and spending, the full benefit of a VAT increase won't be realized. The problem with Japan isn't a lack of taxation. It's low economic growth. Depriving people of more of their stagnant income won't bring about a rush of big ticket purchases.

Plus, government can't be the driver of the economy. That must be the free market. The best thing PM Abe could do is cut wasteful spending, reduce taxes on income, promote entrepreneurship, and open Japan up to free trade.

Yes, Japan's population is aging, and many will retire soon. But, if economic growth remains anemic, and the yen is devalued even further, then those pensions are going to lose much of their value. This is especially true if the consumption tax is raised beyond 10%, which can happen.

Allow more people to keep more of their hard earned income, open up the market to trade and competition, and foster an entrepreneurial class, and the debt can be paid down more easily, and quickly.

2 ( +2 / -0 )

JBinJapan,

I'm sure there is some wasteful government spending, there always is, but I doubt it accounts for anywhere enough to bring government spending under control. The size of the debt is already massive, and government was spending roughly twice the amount of annual tax revenue (90 trillion versus 45 trillion) before the tax hike (which is supposed to bring in 5 trillion extra).

I recall something like 40 trillion (and growing, due to demographics) is spent on social insurance etc. 20 odd trillion to service the existing debt (and that's assuming interest rates stay low). That's 60 trillion there already, before we even look at other costs.

The government has a delicate line to walk to bring spending under control without cutting it so fast as to skittle the economy. This is why I think getting the populace to help out with a little extra consumption tax is a good idea.

Pension cuts do seem inevitable though. Won't be politically popular though.

They could hold off on large purchases, hold out for sales, cycle to work more, etc.

That's supposed to be the deflationary mindset. Under inflation, people are supposed to want to spend their money before prices go up.

I totally agree low economic growth is a problem, but I also think the massive debt is a big problem too. We're not talking just about paying the debt down, but stopping it growing further as well. It will take some helluva growth spurt, probably surpassing Japan's previous "economic miracle" to work out, I figure. With the demographics as they are, I just don't see it happening.

(Some seem to think that the Japanese government is special and can just issue extra debt forever, and have the BOJ buy it up. Who knows, things might work out that way, but I see no guarantee.)

0 ( +0 / -0 )

Are they serious? Do they seriously think people will swallow this? Of course it is up, this is just BEFORE the tax hike, everything was up.

-1 ( +1 / -2 )

"Some seem to think that the Japanese government is special and can just issue extra debt forever, and have the BOJ buy it up"

It's an asset swap, so yeah, it can go on forever. When you shuffle things around, what's exactly are the constraints?

The BOJ buys the debt, and so where does the government's "debt" end up....why, in the hands of the government! Now what kind of "debt" is that, you may ask? It's "fiscal debt" and it is indeed a different beast than private debt. No one seems to have figured that out.

Anyway, Japan isn't "special": Canada, Switzerland, the US, UK, etc are the same.

-3 ( +1 / -4 )

This is not a good number, it is shockingly bad. Despite the huge increase in shoppers expected to spend their money prior to the April 1st tax hike, first-quarter growth turned out to be a palty 1.6%?

It is not palty, that translates into a 6.4% growth rate for the year. If President Bush was still in office he would start wars to get that type of growth rate for the US economy. The real question now will be what with q2 and q3 growth rates going to be?

1 ( +1 / -0 )

JeffLee:

Anyway, Japan isn't "special": Canada, Switzerland, the US, UK, etc are the same.

Can you back up this statement?

2 ( +2 / -0 )

The BOJ buys the debt, and so where does the government's "debt" end up....why, in the hands of the government! Now what kind of "debt" is that, you may ask? It's "fiscal debt" and it is indeed a different beast than private debt. No one seems to have figured that out.

This debt is not owned by the BOJ, the money it borrows to buy bonds is borrowed from the people. If this were not the case, why must 26% of all tax revenue collected from the taxpayers be used to service the national debt? The government does not borrow and spend it's own money, it borrows and spends the people's money. The government must pay those who buy it's bonds a premium, and though the amount is low, when 1 trillion yen worth of bonds have been issued, this adds up to a fair amount of the taxpayer's money. Even when the BOJ buys debt from itself, this debt must be repaid, and it is us the taxpayers who will have to finance this borrowing, right?

It is not palty, that translates into a 6.4% growth rate for the year. If President Bush was still in office he would start wars to get that type of growth rate for the US economy. The real question now will be what with q2 and q3 growth rates going to be?

You seem to forget that government growth forecasts have predicted the economy will shrink for the next three quarters because of the increase in the consumption tax on April first, and that the growth in the first quarter was supposed to be high enough to mitigate those losses. With first quarter growth at only 1.6%, the economy will likely contract by the end of the fiscal year.

The government has a delicate line to walk to bring spending under control without cutting it so fast as to skittle the economy. This is why I think getting the populace to help out with a little extra consumption tax is a good idea.

Pray tell, what steps has the government taken to bring spending under control? Exactly what cuts have been made? All actions taken by the government so far--monetary easing, pushing up inflation, raising the consumption tax, etc., have all been done not to bring spending under control, but to allow even more spending. The government expected to raise 5 trillion yen in extra revenue in the short term by increasing the consumption tax, but immediately spent an extra 5 trillion yen to offset the negative effects of the tax hike, this in addition to various other stimulus programs.

You might think that raising the tax a little more doesn't hurt anyone, but have you ever thought about how much of your hard-earned income ends up being absorbed in tax? Don't forget that what you end up paying isn't necessarily paid directly to the government in the form of taxes, you pay in ways you don't know. The corporate tax rate in Japan is 38%, and this is added into the cost of anything you buy in Japan. The taxes on fuel and road tolls are added to the prices of the goods you buy in the store which had to be transported there. The taxes on gas, oil, and electricity are also added to the costs of the products which are produced in factories, sold in stores, or used in offices. Then there are the tariffs charged on imported goods, which add a lot to the prices you must pay for these goods. And before you pay for any of these things, you must still pay your income tax, residency tax, social insurance, and national health insurance. Exactly how much of your pay is left over after your government takes it's cut?

0 ( +1 / -1 )

fxgai

I agree the debt has to be brought under control without hurting the economy. That's my point. Stagnant incomes, faced with higher taxes, and higher costs (due to taxes, and the devaluation of the yen) won't enable the government to bring debt down.

I disagree with you on the issue of waste. The amount of cash wasted on make-work projects, corruption, graft, and old-fashioned incompetence is bigger than we realize. Huge when opportunity cost is factored in.

For the sales tax increase to work, people would have to continue to spend as they have in the past, if not more. Cuts on spending should, after an extensive audit (plus a crackdown on cronyism and corruption), come first, then cut taxation on income for salaried workers, and the self-employed. That would free up much needed cash for the economy, and allow the new tax to deliver much higher revenues.

As long as incomes remain highly taxed, and stagnant, and government spending isn't brought under control, the sales tax increase will have no net benefit. Families, individuals (especially those caring for aged relatives) need more take-home cash, not the government.

The government here (and in many other countries) has become something of a parasitic institution, causing more harm than good. Japan has to embrace more of a free market style economy, and not expect the government to be its driver. PM Abe, and the rest of them, are essentially glorified legmen for the coalition of special interests they serve.

Abenomics delivers no benefit to the economy at large, and won't bring Japan back to prosperity. It provides the illusion of getting the house in order, but in reality the public debt will continue to climb. An increase in the sales tax is not what Japan's economy needs.

Growth through investment, trade, free enterprise, and consumers with more disposable income: these are what Japan needs.

0 ( +0 / -0 )

A lot of blablabla comments from stock market speculators. Sustainable growth is coming from the creation of value which is either A) Increase of workforce and/or B) Increase in added value job. Plain and simple!

0 ( +0 / -0 )

"This debt is not owned by the BOJ, the money it borrows to buy bonds is borrowed from the people"

Nope. Japan can issue money out of thin air, as it has a fiat currency, to purchase the bonds. That's why there's no correlation between income taxes and fiscal debt levels, unless we have stupid politicians.

Large portions of the debt service payments go back to the people, via the BOJ, the pension funds and the Post Office savings. The money doesn't exit the system.

"Can you back up this statement?"

All those countries have hard sovereign fiat currencies and no huge foreign obligations.

-2 ( +0 / -2 )

Interesting, could it be that Abenomics is working? If Abenomics works like a charm the naysayers will never admit it. They will continue to bash it because they have to.

We will see next quarter.

At least Japan isn't using Hot Money to keep it's numbers up.

2 ( +2 / -0 )

No, JoeBigs, we'll bash it because it does more harm than good. It imposes further burdens on an already heavily taxed population, dealing with stagnant wages, and anemic growth. Abenomics' benefits are short-term, if not illusory, at best.

0 ( +0 / -0 )

sangetsu03, JBinJapan,

I agree with most of what you both say.

I'm not defending the government's lack of cuts to spending - it's just that even if they were cutting spending I don't see that it would be enough to dig themselves out of the inverted Mt Fuji debt hole they are in.

The government has a huge budget deficit, huge debts, and the country's demographics are terrible.

Maybe great policies and an economic miracle could help address the problem, but there's no guarantees of that, and it just seems like low percentage, wishful thinking.

What Japan does have though, is a relatively rich population.

I don't think it's wise to leave the problem un-addressed, for Japan could go the way of other failed governments throughout history. The people of Japan who have voted for politicians that brought Japan to this position need to take some responsibility for fixing their government up.

JeffLee,

The money doesn't exit the system.

But it may be greatly diminished in real value, which is what matters to those dependent on the system. There is nothing guaranteeing that 10,000 yen today is going to be worth the same in the future.

0 ( +0 / -0 )

"But (the yen) may be greatly diminished in real value,"

But it hasn't and doesn't, even though Japan has been doing this policy furiously for many years. My "100 yen" shop sells better and more merchandise now for the same 100 yen than it did 10 years ago. The yen remains one of the world's hardest currencies. That's a fact, not an opinion.

You can couch your sentences in "may" or "maybe" but you need to provide real-world evidence, as I just did, if you want to have a compelling argument.

"I agree with most of what you both say."

Human psychology is interesting. People are often swayed by false information and idle speculation, while repelled by facts and evidence.

-1 ( +0 / -1 )

Is the reason the Japanese don't invest in the stock market is because they don't trust the system?

A different leader pushing through new ethics laws with the teeth to prosecute, and actually do it, regularly, maybe they would feel better about spending some of their savings on stocks. It seems at least every two a Japanese company is buying a foreign one. Wasn't it a US insurance company last week?

0 ( +0 / -0 )

Jeff,

The yen remains one of the world's hardest currencies. That's a fact, not an opinion.

I don't disagree (entirely). But the circumstances of today don't guarantee circumstances 1, 5, 10, 20 years in the future. Your sheer confidence of today's status quo continuing into the future is hardly a "compelling argument" to disregard various risk scenarios.

A prudent approach is to identify and mitigate risks before they come to fruition, lest one ends up in a Fukushima-like situation.

Human psychology is interesting. People are often swayed by false information and idle speculation, while repelled by facts and evidence.

More bravado :) I admire your confidence, if nothing else. One wonders what you make of the recent trends in Japan's trade and current account balances. "Just temporary anomalies" perhaps. Good luck.

0 ( +0 / -0 )

"A prudent approach is to identify and mitigate risks"

I fully agree. And irrational fear (fear not backed by evidence) over the fiscal debt can lead to stupid politics that usher in austerity measures, which could trigger a downward spiral. Witness the US gov't shutdown over the "sequester,"

If that sequester nonsense had been allowed to continue, the US economy would today be stagnating if not shrinking and joblessness would be at double digits.

0 ( +0 / -0 )

fxgai,

You make a very good argument. I just question the timing of a sales tax hike. Anemic economic growth is what needs to be addressed first. Fixing the economy makes dealing with the national debt less painful.

Japan's population is relatively wealthier, yes. But, only relatively. Income stagnation is going to be a real problem if it's allowed to continue, or made worse. The average monthly take home pay in Japan used to be 500000yen a month, now it's 320000yen. Declining incomes aren't a sign of increasing wealth and prosperity.

Now, isn't the time for making goods and services more costly for families and individuals struggling with stagnant incomes, dependent elderly relatives, and employers who demand long hours (many of whom refuse to pay overtime).

Value added taxes work best when there's a thriving consumer to make purchases on daily goods, and discretionary items. We don't have that now. The national debt won't go down unless the government, at all levels, cut their spending levels.

Taxes should either stay where they are, or be cut. Spending should be reduced. International trade, and fostering a larger entrepreneurial class will work in the long term. Hikes

I am from Canada, so perhaps I am biased, but, in the 80s, the Canadian federal government introduced a national consumption tax, a surtax on income tax, and drastically raised taxes. The national debt had doubled by the end of the decade. Meanwhile, the size of the middle class shrunk, incomes grew at meager rates, and the economy limps along at less than 3% growth per year.

Taxation isn't the panacea the proponents of Abenomics claim it is. Abenomics may not be as bad as the naysayers say it is (and I'm one of them), but it will ultimately drag the economy down, and over-burden a heavily taxed population. The Abenomics approach of strong-arming business to give raises, in the face of rising costs, isn't responsible either.

Fixing the economy has to be part of any debt reduction plan.

0 ( +0 / -0 )

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