politics

Abe likely to keep to sales tax schedule in crucial reform

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By Tetsushi Kajimoto and Kaori Kaneko

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.Am glad to hear. Japan has no alternatives. The national bookkeeping job has been poorly managed by past politicians and bureaucrats for decades with no success. The world, IMF and I want Japan to excel, not going off the cliff.

The sales tax is a regressive tax, not a progressive tax, therefore, the food and medicine should be EXCLUDED. PM Abe better starts implementing a social justice if he wants to leave his legacy in J. politics.

-3 ( +1 / -4 )

LOL this is completely ludicrous. The Japanese bureaucrats are artificially creating all this hysterical BS about how Japan "needs" a tax raise or else Japan will collapse, and all the politicians and newspaper editors and the "economists" are merely following along the line of this bureaucratic fabricated reality. It's all completely false. Japan absolutely does not need a tax raise if it cuts governmental waste and crack down on bribes and corruption which is so prevalent in Japan.

Where is all the tax-payers money going? Nobody knows because it's managed so secretively by the bureaucrats. It's all going to waste and almost nothing is used for the benefit of the people at large.

2 ( +6 / -4 )

Beautifully put, Thomas. Same as for donations where just 10% reaches the person in need. I find politics and economy very very amusing for years already but one need to become independent first. There are only a few free thinkers out there who realize what's really going on. Good luck to the majority who believes in the media and system they find confidence at.

2 ( +3 / -1 )

I want Japan to excel, not going off the cliff.

Japan is not in danger of going off any cliff. Japan is in a fiscal and monetary position that allows plenty of room to stimulate its economy. This tax hike threatens to dampen the effects.

The austerity approach, under which the "cliff" belief is founded, has been debunked, as it relied on false data and countries that practiced it, like Greece, suffered serious damage to their economies.

-3 ( +2 / -5 )

I agree with Globalwatcher this time. Ugghhh everytime I see yet another mudanakouji project of digging holes and concreting more of Japan. Ugh. If this were cut instead...

4 ( +4 / -0 )

This sales tax is ostensibly to be used to rescue pension and health care costs. It's foolish to believe that the government will ever reach a point where they can state they have 'enough' money. Look what happened the last time they had enough to cover social services (in the 80s). They blew it all on wasteful construction projects and speculative real estate purchases. Oops. Sorry for causing meiwaku, but we're gonna have to raise your taxes.

Compare with their cronies at Tepco. They raise rates and beg for taxpayer funds, run off with the profits and leave the Fukushima victims in the same position as before.

Business greed as usual. These scumbags will always be asking for more, more, more.

A sales tax increase at the right time and in the right hands can be a good thing, but this government doesn't qualify. I can't trust the additional revenues will benefit anyone except the boys at the top.

2 ( +4 / -2 )

Any tax rise at this stage, will do more harm than any good to j-economy and people's life in general.

3 ( +4 / -1 )

Our wallet is not "extensible" , so if they rise the plan of everything, we will adjust by buying less of everything, now Abe explain how it is good for the economy and for the people's life ?

1 ( +1 / -0 )

plasticmonkeyAug. 04, 2013 - 11:05AM JST

This sales tax is ostensibly to be used to rescue pension and health care costs. It's foolish to believe that the government will ever reach a point where they can state they have 'enough' money. Look what happened the last time they had enough to cover social services (in the 80s). They blew it all on wasteful construction projects and speculative real estate purchases. Oops. Sorry for causing meiwaku, but we're gonna have to raise your taxes.

Exactly.

0 ( +0 / -0 )

JeffLeeAug. 04, 2013 - 10:45AM JST

Japan is not in danger of going off any cliff. Japan is in a fiscal and monetary position that allows plenty of room to stimulate its economy. This tax hike threatens to dampen the effects.

You really do need to do some basic reading, both on economics and Japanese sovereign debt.

Without the April 2014 tax hike, the JGB market will cash and the Bank of Japan will be buying 100% of government bonds issued, instead of the present 70% it is buying" Which in itself is a frightening statistic.

-5 ( +2 / -7 )

Dog

Without the April 2014 tax hike, the JGB market will cash and the Bank of Japan will be buying 100% of government bonds issued, instead of the present 70% it is buying" Which in itself is a frightening statistic.

lol, did you get this from Japanese "economists" on newspaper and online articles, who are all basically repeating the same old bureaucratic mantra that Japan "needs" a tax hike, and that the sky is falling, an economic collapse is imminent, etc? Ever wonder is who is pulling the strings? The Japanese bureaucrats create this mass-hysteria and instill panic into the general population every now and then so that they could achieve their goals amid artificially created chaos and confusion. The whole pattern has start to become predictable.

The bureaucrats wants a tax hike so that they could use the money for themselves. It has always been that way for Japan. And Japanese people are duped every time. This time, I'm not so sure. I think that the burden on the Japanese is getting too great.

2 ( +4 / -2 )

It's foolish to believe that the government will ever reach a point where they can state they have 'enough' money.

Japan's debts are in yen, and Japan has a monopoly to issue yen. So how exactly can Japan be short of the money that it alone creates? I'd love to hear an answer on this one.

the JGB market will cash

People have been making prediction this for the last 5 years or so. Only one tiny problem: it hasn't happened.In fact, yield on 10yr JGB is under one percent!!!! an indication of extremely robust demand.

-1 ( +1 / -2 )

JeffLeeAug. 04, 2013 - 03:20PM JST

Japan's debts are in yen, and Japan has a monopoly to issue yen. So how exactly can Japan be short of the money that it alone creates? I'd love to hear an answer on this one.

As people keep constantly telling you, when you keep coming out with this tired old mantra.

A currency's worth is exclusively determined by the perspective of others, not by the perception of the issuer. For the Yen to remain a viable currency, to buy food and fuel resources which Japan needs, it has to be perceived by the seller that it is not just monopoly money, not worth the ink or paper it is written on.

If Japan continues to run large budget deficits, as is likely, then the falling saving rate and reversal in its current account will make it more difficult for the government to borrow.

Ignoring foreign borrowing and debt monetisation by the central bank, the stock of private sector savings limits the amount of government debt. In the case of Japan, this equates to around 250-300% of GDP. Japan’s gross government debt will reach this level around 2015.

Please do a little bit of basic reading, please!!!!

-3 ( +3 / -6 )

Dog, that argument seems reminiscent of the rantings of a few hedge fund traders, namely the ones that have been shorting Japan over the years and losing bundles of investors' money in the process.

In fact it's the opposite dynamic: a public sector deficit reflects a surplus in the private sector (also foreign sector, which Japan doesn't have anyway), because wherever there's a deficit, there's an equivalent surplus somewhere else. That's why a "balance sheet" is called a balance sheet: it all must equal zero in the end.

Here's an explanation by an economics professor (not a cowboy fund trader) www.businessinsider.com/the-growing-government-deficit-actually-means-savings-for-the-private-sector-2011-2

"The Growing Government Deficit Actually Means Savings For The Private Sector"

0 ( +1 / -1 )

The Japanese debt matter is actually a very interesting and controversial global financial "phenomenon". Although I am no macro expert there are a number of factors that should be taken into consideration before making a judgement. As I always say, I find it absolutely ludicrous that "smart " people can create economic models on a single dimensional model; it is actually a very complex model.

Bad :-

Japanese Government debt is >1000 trillion yen (Oh my God that is a lot!) S&P JGB rating is AA- (same as Saudi Arabia and Taiwan, US is AA+, UK AAA and Canada AAA

Good:-

Foreign Assets = 300 trillion yen (and has been increasing ; above the dollar /yen excnage rate) Postal savings = 180 trillion yen Current account = +5 trillion yen per annum (not many G7 countries have an account surplus; BTW this is not the same as a trade balance) Corporate cash holdings = don't know but its very high (J banks are the largest holders of JGBs) Japan is in deflation Japan can create money at will (related to 5. above) to service the debt (yeah yeah hyperinflation BS) No G7 economy in the past has had zero debt nor is it necessary (its not the same as Joe Smith having $20,000 in credit card loans LOL). As long as the country does not default in bond payments it doesn't matter.

Other factors to consider:-

If the yen plunges to 200 yen/USD then Japanese assets go up in value to 600 trillion yen However, if the interest rates on a 10 year JGB increases by 1% then the national debt increases by 100 trillion yen for all future issued JGBs (NOT bonds issued to date as many Richard Cranium's believe) 10 year JGBs are yielding 0.8% (this is a real time measure of risk; CDSs even more so and is relatively low) Japan holds 1.1 trillion yen of US debt although only 1 % of the national debt can be a big yen/USD mover if repatriated Many hedge funds for over a decade have been betting that the yen and JGBs would turn into toilet paper but have lost a lot of money holding such positions. Therefore the Japanese debt is no new information.

There is no "obvious" answer to where this debt and the effects this has on Japan is going.

3 ( +4 / -1 )

Some basic facts: the budget deficit was 9.2% of GDP last year, and since every year roughly 40% of the government spending has been covered by borrowing via JP bonds, and most of the spendings are for basic expenses (paying public servants, and other social spendings), while wasteful public constructions is a small part of it. This permanent deficit is not sustainable because japanese savings size is about 300% equal to GDP, and cumulated deficit is 240% of GDP, and that's mean merely 60% of GDP savings left for future borrowing. How many years could they continue to borrow before final crisis ? probably 7 years more (9% of GDP deficit per year x 7 = 63% of GDP). Indeed the japanese 1950's baby boom generation is about to retire massively, the japanese pension funds need to pay, and thus cannot afford to lend the money to the government at this low rate of 0.8%.

That's why they (finance bureaucrate, politician) start to consider to raise consumption tax, and sooner or later the tax hike will likely to continue after 2020s to reach the current level of 19% -20% in Europe (France, Germany) unless they decide to cut public servants pay and reduce social expenses !. The Keidanren is against such tax hike because small and medium japanese companies are too dependent on domestic market. Those companies must go global otherwise they will suffer because japanese people will start to spend less because of high tax. Softbank bought Sprint-Nextel because they know the domestic spending outlook will be grim in Japan

0 ( +3 / -3 )

The think tanks and Keidanren are against the sales tax hike because of deflation. Increasing taxes in a deflationary economy is like drinking single malts to get sober. Standards and Poors, IMF have warned Japan that if they don't do something about the debt like increasing the sales tax, they will degrade JGB ratings. This is a big fat dilemma for Abe and co.

3 ( +3 / -0 )

Standards and Poors, IMF have warned Japan that if they don't do something about the debt like increasing the sales tax, they will degrade JGB ratings. This is a big fat dilemma for Abe and co.

Providing the combine it with other reform measures, it's going to be OK and probably healthy for Japan in the long term. As you have alluded to, holding of foreign assets they don't need to hold gives them room, as does targeting the mountains of cash in the corporate sector balance sheets - if they can increase wages/dividends to shareholders it works towards an inflationary cycle. It's getting both monetary and fiscal policy to provide a two pronged approach.

1 ( +1 / -0 )

Historically there are two commons ways of eradicating the massive debt that the governement could not pay back to lenders: (1) create inflation (QE + currency devaluation) or (2) restructuring the debt. The Abenomics adopt the approach (1): QE (massive injection of money) and currency devaluation. The objective behind of achieving 2% inflation while continuing to borrow at 0.8% rate for 10 years bond) is part of this intention of it, and time will tell whether the japanese lenders (pension funds, public postal savings) will accept to lend to government at interest rate lower than inflation rate. I doubt because the pension funds need to pay to the 1950's baby boom who is going to retire massively.

3 ( +3 / -0 )

Is it hubris or plain ignorance? The BOJ and economic advisors to the incumbent Government are no dumb f's, many are graduates of top International universities with MBAs or doctrates in their specific fields. What dumb f would target 2 % inflation and expect bond yields to remain at 0.8%?? This is all about economic growth->corporate growth->wages growth->more economic growth->demand pull inflation->taxable income growth->lesser Gov debt. When the economy really starts to grow then the BOJ will increase interest rates. Take a look at what is happening to the US now in terms of interest rates and expectation of growth.

1 ( +2 / -1 )

It's good to expect high growth and the BOJ and other advisors are very smart people surely but the same folks in Cabinet office said that the primary budget deficit will be 4.2% of nominal GDP by 2020 even if Japan achieve around 1.5% every year this decade.

This year the growth will be 2.5% but the growth is likely to be low due to the tax hike next year, and the shrinking and graying population is going to hamper any effort to achieve sustainable high growth above 2%. The US is completely different due to high immigration rate.

3 ( +3 / -0 )

If the sales tax hike does not go through, we will buy more CDS against Japan. That's all we, global investors need to do. I can understand why it is too hard for some Japanese to swallow the truth. Good luck, Japan. It is all in you hands.

0 ( +0 / -0 )

To whom does Japan owe this money?

If there's a deficit, then there must be an equivalent surplus somewhere else. Where is the surplus?

0 ( +1 / -1 )

First he gives away money; money that Japan doesn't have and now the people are going to pay for his folly from higher sales tax. Milk and energy costs have escalated with the devaluation of the yen. As if not punitive enough for the people here comes the sales tax. And, then what about all the unnecessary costs of flying fighter jets and naval patrolling as a result of unilateral action by the government to nationalize the Diaoyu Islands which have been islands of ownership contention pending resolution? Why is Abe piling on unnecessary expenditures and wasting money that could have been better used to re-structure the economy and create employment? The politicians are probably very happy with what has happened but are all these what the people want?

-1 ( +0 / -1 )

JeffLee, you asked the single most important question in this whole damned debate. The reason why Japan can get away with a GDP/DEBT ratio like it has is because of who it owes most its money to, Japanese people and companies own most of Japan's debt. I have linked to a financial analysis of Japan's debt for reference. Japanese people/companies are not going to bankrupt the government by calling in all their debt at the same time.

http://usatoday30.usatoday.com/USCP/PNI/MONEY/2012-01-08-PNI0101biz-ask-stevePNIBrd_ST_U.htm

0 ( +0 / -0 )

Indeed, hworta269. People get really worked up about this issue without understanding the fundamentals behind it.

Your link doesn't work, by the way.

0 ( +0 / -0 )

JeffLeeAug. 05, 2013 - 11:20AM JST

Not quite, JeffLee. We went though this over and over already before. I do not know what to do to make you understand. . When the credit rating is lowered from what it is now in global financial environment, the borrowing cost will increase. Dog has already given you a basic in economic theory listed below.

DogAug. 04, 2013 - 03:36PM JST

A currency's worth is exclusively determined by the perspective of others, not by the perception of the issuer.

0 ( +0 / -0 )

When the credit rating is lowered from what it is now in global financial environment, the borrowing cost will increase.

Then how do you explain that lots of countries with higher credit ratings than Japan's have much higher borrowing costs? If you seriously think that 0.80 percent for 10yr (10 years!!!!) JGB is high, then you need a reality check. There is no formal link between credit ratings and interest rates.

Dog has already given you a basic in economic theory listed below.

LOL. Dog has given given me a bizarre fabricated view made up by hedge fund traders who have shorted Japan for many years, lost lots of money as a result, and now need to have something to tell their angry investors. Whatever that is, it's not "economic theory," and real events have constantly proved them wrong.

We went though this over and over already before.

Yes, and I recall winning the debate, mainly by citing basic facts about how monetary and fiscal policy work. Your predictions of Japan collapsing, skyrocketing bond rates, etc. just haven't happened. Why?

0 ( +0 / -0 )

JeffLeeAug. 05, 2013 - 01:24PM JST

When the credit rating is lowered from what it is now in global financial environment, the borrowing cost will increase.

Then how do you explain that lots of countries with higher credit ratings than Japan's have much higher borrowing costs? If you seriously think that 0.80 percent for 10yr (10 years!!!!) JGB is high, then you need a reality check. There is no formal link between credit ratings and interest rates.

Credit Rating companies will be able to disclose the underwriting criteria shortly.

Dog has already given you a basic in economic theory listed below.

LOL. Dog has given given me a bizarre fabricated view made up by hedge fund traders who have shorted Japan for many years, lost lots of money as a result, and now need to have something to tell their angry investors. Whatever that is, it's not "economic theory," and real events have constantly proved them wrong.

It is actually a theory of economics. Dog is correct on that. I am going to bed, but I will come back and find materials for you to read.

Yes, and I recall winning the debate, mainly by citing basic facts about how monetary and fiscal policy work. Your predictions of Japan collapsing, skyrocketing bond rates, etc. just haven't happened. Why?

Why? You have asked me a 6 million dollar question. It takes at least a whole year of basic economic class and a whole year of international finance. Have you ever borrow money from bank?

0 ( +0 / -0 )

JeffLeeAug. 05, 2013 - 01:24PM JST

Then how do you explain that lots of countries with higher credit ratings than Japan's have much higher borrowing costs? If you seriously think that 0.80 percent for 10yr (10 years!!!!) JGB is high, then you need a reality check. There is no formal link between credit ratings and interest rates.

Because the Bank of Japan is buying 70% of the those issued bonds. A very dangerous game indeed, which was first tried in Japan in the 1940s and resulted in the Japanese people losing all of their monetary savings by 1948

JeffLeeAug. 05, 2013 - 01:24PM JST

Whatever that is, it's not "economic theory," and real events have constantly proved them wrong.

It is the most rudimentary law of the economic theory of monetary value, which a 14 year old learns in his first economics class.

JeffLeeAug. 05, 2013 - 01:24PM JST

Yes, and I recall winning the debate, mainly by citing basic facts about how monetary and fiscal policy work. Your predictions of Japan collapsing, skyrocketing bond rates, etc. just haven't happened. Why?

Because Japan has not reached the level where the stock of private sector savings limits the amount of government debt. In the case of Japan, this equates to around 250-300% of GDP. Japan’s gross government debt will reach this level around 2015 at the earliest and 2020 at the latest.

The difference between Greece and Japan, among other things, is that the Greek stock of private sector savings was always lower than Japan's. Therefore the amount of government debt the Greeks could sustain was a lot less. However those private savings in Japan are being used up by the Dankai savers who are enjoying their retirement and not being replaced by the savings of the younger generation. Therefore the 250-300% level of GDP will actually go down. It's like 2 comets, government debt and private sector savings, hurtling towards each other.

The end result for Japan will be the same as what's happening to Greece, but on a much bigger scale. Those vital imports of fuel, materials, food and medicine will not be coming to Japan, unless it pays for them in any currency, other than the soon to be the worthless Yen. It's called hyperinflation and it happens in a matter of weeks, not years.

I give up........

-2 ( +1 / -3 )

Japan is not in a static world. While Japan is weakening the Yen, China is propping it up. America and Europe are also printing money. The net effect wont be to bad for the key economic players, its the third world that will suffer the most as commodities are priced in dollars..

-1 ( +0 / -1 )

"Because the Bank of Japan is buying 70% of the those issued bonds."

And that should beg the question I asked earlier: WHO does Japan owe its fiscal debt to?

0 ( +1 / -1 )

This has been said above again and again, Japan ownes its fiscal debt to japanese people via postal savings and japanese financial companies (pension funds, banks, insurance) who buy JP bonds every year.

0 ( +0 / -0 )

Thanks, JP202. You could have also mentioned that much of the govt "debt" is held...by the gov't itself, such as the BOJ, and the debt-servicing payments flow into the Treasury or into the financial institutions as private income. So Japan is indebted to itself, and gets paid for it to boot.

The point is: Japan's debt is sustainable -- plus the fact that it's free to print its money to meet its debt obligations anytime it needs -- and that's why bond yields are so amazingly low. And that's why Japan has not collapsed despite all the doomsday predictions over the years. And that's why this consumption tax hike is pointless.

0 ( +1 / -1 )

JeffLeeAug. 05, 2013 - 05:31PM JST

Thanks, JP202. You could have also mentioned that much of the govt "debt" is held...by the gov't itself, such as the BOJ, and the debt-servicing payments flow into the Treasury or into the financial institutions as private income. So Japan is indebted to itself, and gets paid for it to boot.

The point is: Japan's debt is sustainable

Forgot it. You have just ignored everything what Dog and I have been saying. I give up. . Please think what IMF S&P and three major world credit companies having been saying?

-1 ( +0 / -1 )

You have just ignored everything what Dog and I have been saying

No I didn't. I Googled a phrase out of Dog's post, only to find it in a hedge fund trader's blog. Sorry, it ain't economics, it's a concocted excuse for why traders taking the short-japan position have been losing so much money.

Please think what IMF S&P and three major world credit companies having been saying?

The IMF advocated austerity. Recently, it admitted it was wrong doing this. It made a big, big mistake. Credit rating companies? They gave securities backed by US subprime mortagages AAA ratings until 2008. They go it wrong then...and they got it wrong now regarding Japan's debt.

0 ( +1 / -1 )

JeffLee is right. All this "sky is falling" nonsense that you typically on Japanese newspaper articles is completely nonsensical. A state can't possibly bankrupt. The vast majority of the debt are owned by the Japanese. The situation is completely different from Greece, yet the "sky is falling" "economists" are equating this to Greece, and they're saying that if they don't increase the tax rate then the same thing that happened to Greece will happen to Japan. It's 100% nonsensical.

Obviously you wouldn't want too much debt, but right now, the sky isn't falling, and the economy isn't collapsing. There's almost nothing wrong with the current economic climate in Japan. It's all just fabricated BS that you see on newspaper articles.

0 ( +2 / -2 )

JeffLeeAug. 05, 2013 - 08:52PM JST

No I didn't. I Googled a phrase out of Dog's post, only to find it in a hedge fund trader's blog.

Please enlighten us on what phrase you googled to find a hedge fund trader's website. Please do?

@Globalwatcher,

This is a lost cause.......do give up...... The guy sounds like he's living on a hippy commune and expects the world to operate likewise

Thomas AndersonAug. 05, 2013 - 09:23PM JST

JeffLee is right. All this "sky is falling" nonsense that you typically on Japanese newspaper articles is completely nonsensical. A state can't possibly bankrupt.

Argentina.. Iceland...Weimer Germany... Russia... Pakistan....Zimbabwe.... Ecuador.... France (eight times)... Spain (five times)... the list can go on.... Hungary.... Czechoslovakia..... Italy.....

-1 ( +2 / -3 )

"Please enlighten us on what phrase you googled to find a hedge fund trader's website. Please do?"

Here you go: http://www.economonitor.com/blog/2013/01/the-setting-sun-japans-forgotten-debt-problems/

Derivatives industry man Satyajit Das says; "In the case of Japan, this equates to around 250-300% of GDP. Japan’s gross government debt will reach this level around 2015 at the earliest and 2020 at the latest."

Dog says: "In the case of Japan, this equates to around 250-300% of GDP. Japan’s gross government debt will reach this level around 2015, although net government debt will not reach this limit until after 2020. "

So I"'m "ignoring" your posts, eh? Once again Globalwatcher makes a false accusation against me. LOL.

"Please enlighten us on what phrase you googled to find a hedge fund trader's website. Please do?"

Here you go: http://www.economonitor.com/blog/2013/01/the-setting-sun-japans-forgotten-debt-problems/

Derivatives industry man Satyajit Das says; "In the case of Japan, this equates to around 250-300% of GDP. Japan’s gross government debt will reach this level around 2015 at the earliest and 2020 at the latest."

Dog says: "In the case of Japan, this equates to around 250-300% of GDP. Japan’s gross government debt will reach this level around 2015, although net government debt will not reach this limit until after 2020. "

So I"'m "ignoring" your posts, eh? Once again Globalwatcher makes a false accusation against me. LOL.

1 ( +1 / -0 )

So I"'m "ignoring" your posts, eh? Once again Globalwatcher makes a false accusation against me. LOL.

Classic!

May God grant you knowledge. Knowledge is power. Good luck.

1 ( +2 / -1 )

Readers, please stop bickering.

0 ( +0 / -0 )

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