politics

Abe says Japan has no choice but to hike sales tax

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By Shingo Ito

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That's an odd view, considering Japan invented quantitative easing 13 years ago. It's the mother of zero interest rates and monetary "pumping" The outcome: world's lowest bond rates, strong stable currency and deflation. The stark opposite of the predictions your school of thought keep making. Maybe it's time for a re-think?

13 years ago was 13 years ago. Japan was the second largest economy, it's debt hadn't reached 250% of GDP, and the future still looked more bright. September 11th and the "war on terror" had not yet occurred, and a "euro crisis" was not something that anyone could have imagined ever happening. The price of oil was stable, and growth was occurring. The world's ecoomies were faring well, with the exception of Japan, which was still reeling after the econimic problems which followed it's last consumption tax hike.

The world now is a much different place, and certainly not a better one.

-2 ( +1 / -3 )

The monetary base includes commercial bank reserves, which are numbers on a balance sheet, not real physical money. So the QE is largely an asset swap, and not actually "printing money." The pundits use the latter phrase in a figurative, not literal, sense. An alarming number of commentators don't know this, and as a result they concoct these predictions that never come true. Some are hedge fund traders, who, by the way, are losing their shirts on the "japan will fail" trade.

"There's been a 20% loss in value of the yen against the US dollar"

True, but it was after the yen hit a record high, which was never expected to be sustained. The current rate is in line with contemporary historical averages.

"to miraculously bring about a sustainable economic boom in Japan"

I imagine that won't happen, due to structural problems and demographics. The fiscal debt, while huge, is still a red herring, methinks.

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JeffLee,

The BOJ doesn't pro-actively print currency. It prints based on demand within the economy.

That's a more normal modern central bank function, I don't think it has much to do with the new BoJ policy that aims to double the monetary base in 2 years.

In short, please cite some real-world evidence to back up your views. As it stands, you cite a series of imagined events that haven't happened.

There's been a 20% loss in value of the yen against the US dollar (to pick an arbitrary reference point) since Abe first took the LDP leadership last year, bandying about his plans for meddling in BoJ policy.

Yes, the US is doing lots of QE too. That the yen has depreciated to such a degree under those circumstances just speaks of the magnitude of what the BoJ is doing.

That's an odd view, considering Japan invented quantitative easing 13 years ago. It's the mother of zero interest rates and monetary "pumping" The outcome: world's lowest bond rates, strong stable currency and deflation.

The numbers have too many zeros it boggles the mind, but I do believe what the BoJ is doing now is on a different scale to those previous reluctant experiments by the BoJ.

The stark opposite of the predictions your school of thought keep making. Maybe it's time for a re-think?

As for myself, I'm happy to assign a non-zero level of risk to these scenarios and be safe rather than sorry. I do hope for your sake and the sake of the typical Japanese citizen that this QE policy and more government debt is part of the solution to miraculously bring about a sustainable economic boom in Japan.

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"The BoJ could, by printing more money, but that would devalue the yen"

The BOJ doesn't pro-actively print currency. It prints based on demand within the economy. The surge in inbound tourism has created slightly more money printing than usual because tourists use lots of cash (I read in the WSJ), but that's another (insignificant) matter. The loans stimulated by QE are nearly all in real estate. There's no need to print any money for that, it's a shifting around of balance sheets.

"But issuing yen at will has the effect of devaluing it"

But in reality it hasn't. The debt service payments are recorded as private income when made to the private sector, and as revenue when made to the public sector. So you can think of it as a kind of stimulus. The US and Euro are also employing super loose monetary policy, which cancels out devaluation of the yen. Also, Japan has been doing this almost freely for many years... with no devaluation.

In short, please cite some real-world evidence to back up your views. As it stands, you cite a series of imagined events that haven't happened.

"which is why (Japan) has been hesitant to "pump" in the past."

That's an odd view, considering Japan invented quantitative easing 13 years ago. It's the mother of zero interest rates and monetary "pumping" The outcome: world's lowest bond rates, strong stable currency and deflation. The stark opposite of the predictions your school of thought keep making. Maybe it's time for a re-think?

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Um, Japan continuously suffers the opposite problem: deflation. Hyper inflation is a far-off fantasy in Japan's current case.

Untrue, this is the thing the BOJ fears the most right now, which is why it has been hesitant to "pump" in the past. A currency is based mainly on faith, faith in the country that issues the currency. With staggering debt, a decreasing population and economy, there is little to have faith in. Other than it's holdings in foreign assets, Japan has nothing else which it can back up the yen with. No oil, no gas, no coal, no agriculture, fewer and fewer manufactured goods; hyper-inflation is a very real threat.

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JeffLee,

Yes, that's true, but Japan's debt is denominated in yen, which Japan has the monopoly to issue at will.

This is right. But issuing yen at will has the effect of devaluing it, which is the equivalent to transferring wealth away from those holding yen.

The BoJ is careful at the moment to say that they aren't monetizing the debt, although I wonder if they really believe it.

The fiscal debt is sustainable, given that it's held by the Japanese themselves, mainly its own institutions, and it's easy to service for the reason stated above.

The debt is still growing though, it's not stable. And this is with interest rates really low, due to BoJ policy. Currently the total debt is less than the amount of assets held by Japanese, but unless the Japanese are getting richer faster than the government is getting indebted, eventually who is going to be left to buy the debt? The BoJ could, by printing more money, but that would devalue the yen (at least some of the yen's recent weakness is due to this policy). Alternatively the over supply of / lack of demand for debt would see the debt decrease in value, and interest rates go up. Then the government will need to pay way more interest than they currently do, and things only spiral into a worse situation. If the value of the debt that the BoJ purchased crashes, that too is not a good sign for the currency that it backs.

My proof for all this? That over many years, there has been zero correlation between the enormous growth of its debt, the value of the yen, inflation or on govt bond rates (the world's lowest), despite all the dire predictions to the contrary. The day a correlation emerges is the day that'll agree with you.

OK :) Hopefully you won't be having a bank account full of yen if that day arrives!

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"But they do both have a lot of debt."

Yes, that's true, but Japan's debt is denominated in yen, which Japan has the monopoly to issue at will. Cyprus needs to acquire Euro from its Euro creditors like Germany. Not all debt is created equal.

Japan could implode, as you say, but likely from its demographic crisis, etc. not thru its public debt.

The fiscal debt is sustainable, given that it's held by the Japanese themselves, mainly its own institutions, and it's easy to service for the reason stated above.

My proof for all this? That over many years, there has been zero correlation between the enormous growth of its debt, the value of the yen, inflation or on govt bond rates (the world's lowest), despite all the dire predictions to the contrary. The day a correlation emerges is the day that'll agree with you.

2 ( +2 / -0 )

Abenomics can't just settle with global currency stabilizing itself - gradually, of course. NO!! Abe-mania now takes advantage of the yen gainning export growth and infuse the argument of social security system as a cop-out to impose tax infractions at workforce class. Then, sure enough, finance the gains for Tepco, The Olympics, Corporate Development and so on. Abe-san, YOU will bring Japan to its knees for this, mark my words...!!!

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JeffLee,

Japan's economy has nothing in common with Cyprus's. Cyprus lacks its own sovereign currency and has huge external debts, for starters.

But they do both have a lot of debt. That is something they have in common, and IMO it's the most relevant.

Um, Japan continuously suffers the opposite problem: deflation. Hyper inflation is a far-off fantasy in Japan's current case.

Just because something hasn't happened yet, doesn't mean it won't in the future. Look, considering the levels of debt that Japan has, and that the central bank that issues the currency is hoovering up loads of long term JGBs by just creating "money", if it all goes bang would you really be surprised? The causes of a crisis are always obvious to everyone, but only after it has come to pass. I'm not convinced it is going to go bad, but one thing I do know is that the risk is not zero.

The yen is one of the world's strongest, stablest currencies, and has been for the past several decades.

Sure, but did Japan have debt in excess of 200% of GDP, a trade deficit, and a shrinking current account surplus, and a shrinking population/workforce over those past several decades? Things are changing in Japan.

You seem to inhabit a different planet from me. Where are you getting your information?

Well I'm thinking about the future, and I'm thinking about risks. It seems to me you are thinking about the past, and you are living in hope that there is no problem, and that it's (as Abe sometimes says) completely under control.

Look, I hope you are right and this debt situation is entirely sustainable and never going to result in hardship for people living in Japan. But I'm not going to risk my livelihood on it given what I see in front of me.

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"Sure, but folks with bank accounts in Cyprus..."

Japan's economy has nothing in common with Cyprus's. Cyprus lacks its own sovereign currency and has huge external debts, for starters.

"but it might cost 1,000,000 yen to fill your car up at the pump."

Um, Japan continuously suffers the opposite problem: deflation. Hyper inflation is a far-off fantasy in Japan's current case.

"what does that say about the value of the currency that it issues?"

The yen is one of the world's strongest, stablest currencies, and has been for the past several decades. Whenever I travel abroad, regardless of the country, exchange dealers are more than happy to take my yen.

You seem to inhabit a different planet from me. Where are you getting your information?

1 ( +1 / -0 )

"have no choice" isn't a good excuse nor a smart excuse.

0 ( +0 / -0 )

Of course, where else will the money for the unnecessary additional military expenditures come from?

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JeffLee,

I never understand how relaxed people with that opinion are :) Is it really all OK?

The taxman has not and will not ever show up at your doorstop demanding payment of millions of yen so.

Sure, but folks with bank accounts in Cyprus no doubt felt the same way, before that government locked down their banking system, restricted withdrawals, and imposed capital controls.

These problems can manifest themselves in various ways, depending on the options the decision makers go for. The Cyrpus govt couldn't manipulate the Euro, so Cyprus stakeholders copped it via another method.

Indeed the Japanese government can influence the yen (and has sought to devalue it to an extent), but it's a case of choosing your poison. There is no happy easy way out, is there?

It's a fiscal debt, which is held mainly by institutions and is paid electronically by the gov't to its creditors in a currency the gov't has the sole authority to issue.

Sure, but it might cost 1,000,000 yen to fill your car up at the pump. No government can guarantee a minimum value of its currency on the foreign currency markets, can they?

BoJ governor Kuroda gets this. He was urging the govt to go ahead and raise this tax, because he presumably knows that just because the debt to GDP ratio at 250% hasn't yet precipitated the crisis, there is no guarantee at all that will be the case if it hits 500% or 1000%.

How is there supposed to be a happy ending at the point when the government collects less in tax revenue than it costs to pay the interest on the debt? And if the BoJ is the one holding all the debt, what does that say about the value of the currency that it issues?

1 ( +2 / -1 )

davestrousers,

I think you are totally right! The sales tax hike is a token gesture, but the discipline enforcing financial markets are fickle and look to attack the easiest targets. If Japan were just to announce that they plan to default, no doubt that would be the beginning of the end, but this tax hike tokenism is part of the delay-and-pray strategy. I don't think the chances are great, but if by some miracle the world economy picks up before Japan's debt explodes, they might be able to get out of the hole.

But remember that Abe does want to generate inflation. If successful, that will facilitate a real transfer of wealth from the asset rich elderly, reducing the real burden of the debt. Given the choice between explicit cuts to social welfare or implicit / stealth cuts via inflation, politicians will always opt for inflation as the prime method to reduce debt burden.

1 ( +2 / -1 )

"every Japanese citizen is burdened with a 6 million yen national debt"

A bogus pseudo fact. The taxman has not and will not ever show up at your doorstop demanding payment of millions of yen so. So don't worry about it.

It's a fiscal debt, which is held mainly by institutions and is paid electronically by the gov't to its creditors in a currency the gov't has the sole authority to issue.

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Thing is though, this is nothing more than a token gesture in terms of paying off the debt. A real plan either doesn't exist, or must be something different... delay default as long as possible, or hyperinflation, wait for world war 3, something like that.

1 ( +1 / -0 )

@sfjp330

You hit the nail on the head. The sales tax itself would be bearable if all of these other "taxes" and market floors weren't in place as well. Something will have to give. You might see more people stealing rice in Niigata fopr example (I am not advocating it, but just saying what is to come).

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cnc,

Not only is the burden equivalent to in excess of 6 million yen per Japanese citizen, that burden also falls on non-Japanese citizens who are tax residents here as well.

The debt is at a point where worried people with assets go on bank account opening tourist trips to stable bank jurisdictions like Singapore to open bank accounts. They simple don't trust the government to not freeze the Japanese banking system when the debt crisis comes to town.

Typical non-Japanese citizen foreigners have, I guess, such escape routes in place already in their homelands.

JTDanMan,

The conservative party is letting the tax hike go through for the same reason as the last government adopted the measure - to start to try to bring Japan's finances under control. It may just be delaying the inevitable but it would be more irresponsible to not even try at all.

It is I think ridiculous that they spend more money to stimulate the economy to try to offset the negative effects, but at least they are aiming to do so without issuing more debt. One does wonder how come they have the loose 5 trillion yen sitting about the place though.

0 ( +1 / -1 )

You older folks payed no consumption tax for most of your lives

The shohizei replaced the old buppinzei. A rose by any other name, except that buppinzei had different rates for different items, and there was no tax on food and other necessities - the thorn found in the shohizei.

I would comment that it was the older folks who paid for you younger folks' education, except that it doesn't seem to have been very effective, in teaching either spelling, manners or basic economics - who do you think built up the economy, built the roads, railways, bridges you use every day, the schools you send your kids to, the hospitals you go to when you're sick? So I won't.

Pipe down, crawl back into your Mum's back room and ponder.

-2 ( +1 / -3 )

Am I the only one that is peeved at the comments of "how hard it's going to hit those of us on Social Security"... Really? For real?

You older folks payed no consumption tax for most of your lives and only 3% from '89. Pipe down and crawl back under your kotatsus.

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Only in Japan, where the hand cuts like a knife, does the conservative party raise taxes to stimulate the economy.

LOL

0 ( +1 / -1 )

There is one simple solution not mentioned here yet. Stop lending money to the US and cash in all the bonds the Japanese are holding on to for God, I don't know what!!!

at the moment every Japanese citizen is burdened with a 6 million yen national debt. I just wonder where the figure will stand if theis climax of Abenomics fails.

1 ( +1 / -0 )

A one-time 10,000 yen payment for low income earners? Your tax hikes will increase household spending by that much every month

Someone needs a math lesson. If you're paying an extra 10,000 yen for consumption tax, it means you're spending 330,000 yen on shopping a month. Since rent takes up approx 30% of your earnings, that means you'd have to be making over 500,000 yen a month. Not exactly "low income." We're not even including insurance or amount going towards savings.

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Japan is saddled with debt. Its payback time. And blame the oldies for keeping the old guards in their position, blame the young for their apathy and lack of interest.

2 ( +2 / -0 )

I wonder where he gets 2 billion dollars plus for this years' price to let USA military force stay and use bases in Japan. Japan will not be able to evict them as USA is bankrupted now. USA needs those annual 2 billion dollars plus right now. I wonder what kind of tax increase?

0 ( +1 / -1 )

The problem with the Japanese economy is that there is too many middle men between the product and the consumer. It was design to give jobs. With the population decreasing, they really should streamline this. They you have a 250% debt burden. That is more than twice that of Greece. Will Japan do austerity, I doubt it. The tricky thing about trying to get the economy into inflation from deflation is that you can easily go to hyper inflation because of the debt. But this is one way to reduce the debt too, the higher the inflation the less value is the debt. But you may see days as in the past when the yen/dollar is something like 300/1 again. During the go go 70's and 80's the yen/dollar went from 360-150 to 1. The trick for Abe is to the economy moving without becoming Zimbabewa but not sure if you avoid becoming Venezuela.

2 ( +2 / -0 )

Maybe J-goverment should focus on reducing the inefficient farm subsidies and reduce burden on the middle class people. Japan already has low food self-sufficiency rate and an inflexible farmland market. Rather than seriously tackling these problems, the J-government has chosen to compensate farmers through import restrictions, The inflexible farmland market and the government policy of reducing the amount of land cultivated as rice paddies. In addition, the majority of farmers are already at the retirement age of 65 or older, with few successors.

Today, many farmland has been abandoned and not farmed for decades, but still owned by an ex-farmer household. The actual number is probably much higher, as farmers often deny abandoning land in order to receive various incentives from the goverment and to avoid higher land taxes, as the real estate tax law favors farmland. Yet few younger Japanese farmers can buy the abandoned land.

Why is it that farmland itself, not crops, is the most profitable output in Japanese agriculture? Farmers can expect their land to be sold at extraordinarily high prices when the government builds roads, airports and other public facilities or when discount stores and other companies buy their land. Thus, it makes sense for farmers, especially those with good farmland, to wait for such offers rather than to sell their land to fellow farmers who cannot pay as much. And farmers know the best way to foster windfall offers: pressure local politicians. The best scenario for Japanese farmers is to keep the farmland, whether they are actually farming or not, in order to receive various agricultural subsidies and enjoy a low tax rate. This has to change.

1 ( +2 / -1 )

Totally unnecessary. Japan has the world's lowest govt bond rates, zero inflation and no external debt. Spending, not taxing, is the solution, given Japan's macroeconomic situation.

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Yes, I do agree that his choices are limited in terms of the sales tax hike, but this is just one piece of the puzzle. He left out the austerity measures such as cuts in staff in Kasumigaseki and Nagatacho. There are so many layers in govt orgs that need to be cut and for once get rid of the Amakudaris. So far, no PM has the guts to tackle this issue.

1 ( +1 / -0 )

July 2013 rwepoert was that USA debt to Japan increase made JUSA owe to Japan as much as China. 1133.4 billion dollars. Maybe abe knew USA can not pay anything to Japan (Bankruptcvy now) so that Abe decided to raise tax?

-1 ( +0 / -1 )

@Franz Pichler wrote:

You keep ignoring the main argument that most of the Japanese population can't afford a sales tax of 20%, they simply can't.

Ah, they not only can but they will. After all, what choice do they have?

What you need to understand is that Japan follows the lead of the U.S. and in the U.S. they have been very busy destroying the middle class. What the U.S. discovered is that a middle class is very expensive. The salaries that middle-class workers receive really cut into corporate profits and, thus, the middle-class needs to be eliminated.

A sales tax helps with that because it has a major impact on the lower and middle-class people who spend all or most of their income on taxable goods. And, besides providing revenue that might otherwise have to be collected from corporations, it has the effect of making the lower income folks more desperate to keep their jobs (by, for example, making it more difficult to build up savings) and that helps suppress salaries.

All around a jolly good show!

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Oh, Japan is now screwed!

-1 ( +2 / -3 )

Whoosh, glug, glug, glug. There went the so-called recovery, down the porcelain hole.

Got precious metals? Paper is worthless.

-1 ( +4 / -5 )

BIG MISTAKE!!!

A POLICY ALL GONE WRONG

Abe, you have done very well since you took the helm so far with the weakening in yen.......

but this sale tax hike will be the start of a "Policy all gone wrong!" ......

This policy will drag you down if you decided to push the green button.

There are many ways to reduce National debts.

“If Japan failed to take action now, it would lose its trust with the world.” Taking action by increasing local sale tax is a NO NO, you want to win the world but gamble with your domestic sentiment? Sale tax affect the entire nations of your own type........Think carefully before you become "History" like Michael Jackson!

Reduce wasteful govt spending, increase corporate tax, are examples to solving National debts, not by increasing sale tax affecting the poor struggling locals...... period!

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@Franz Pichler

You keep ignoring the main argument that most of the Japanese population can't afford a sales tax of 20%, they simply can't. Anyone living in Japan knows that everything is expensive here, everything, fresh vegetables, fruits, meat, transportatiosn, now gasoline, electricity, hobbies, schools, nurseries, clothes, taxes for everything, you get the idea. The base prices are simply well above than what is available in other industrialized countries. A 20% sales tax would be simply untainable and the economy would just go down. And the fact that you mention European countries is non sense, a lot of those countries have way cheaper prices for the items mentionned above, they have free or cheap education, they have free or cheap nurseries, etc. The comparison is just not appropriate and simply flawed and Japan will of course never use its taxe revenues for anything than wasting money for construction companies or to pay a complex chain of bureacucrates with gold parachutes.

If the stupid japanese politiancians wouldn't be well ..... stupid, they would have introduced different levels of sales tax. Fresh food and essential items would stay at 5%, 7% or 8% for cultural items and activities (cinema, books, ... not for manga and tabloids) and restaurants, 10% for the rest excluding tobacco and alcohol that should be taxed higher, perhaps 15% ( it's so obvious but they don't do it because of the government bureaucrats ties with Japan Tabacco and the alcohol producers). Here you have it, a fair sales taxing system.

It doesn't fix the debt problem because this problem can't be fixed at the level it is, it just can't. With an aging population at a horrifying speed, there is no way that Japan will ever recover its gigantic debt with all taxes that you want.

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Japan is collapsing, even more so after April. I hope all foreigners have done the sensible thing and converted their wealth already into dollars and euros?? You'd be crazy to hang onto yen

Couldn't agree more with this. Everybody I know has dumped their yen holdings for Dollars, Euros and Swiss Francs. Nobody trusts the yen anymore and wants to keep it other than a necessary absolute bare minimum.

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A one-time 10,000 yen payment for low income earners? Your tax hikes will increase household spending by that much every month! The rich will get richer and the poor will get the third arrow right up the pooper! His economic policies are flawed and will fail! Yeah, the stock market has bounced back and consumer spending has increased, but that will all change very quickly once the tax hike hits homes. It'll be six months of growth and five years of misery!

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The have plenty of disposable income, its called savings. Japanese dont spend or go into debt like Westerners do and most live in humble conditions. The deflation situation has made many cautious. They dont have the income they had in the 80s, but most are paid well.. Once they see prices rise, they will start spending. This is what Abe is trying to create.

Despite being the world's third-largest economy, Japan rates number 17 acording to the lastest study performed by the UK's national office of statistics. When comparing puchasing parity power (PPP) studies, Japan slips out of the top 20 nations. Simpy stated, the Japanese are not at all paid well in relation to their cost of living.

A few facts that may be of interest to those who think Japan is an impoverished society.

Postal savings: 224 trillion yen Life Insurance savings: 126 trillion yen Corporate cash holdings: 220 trillion yen

The only problem with these figures is that they are in yen. How much of the assets in Japanese banks and elsewhere are in JGB's? Enough to cancel out both of the above figures several times? Japan's economic strength is not in it's yen holdings, but in it's foreign currency holdings. The yen right now is a very flammable currency, and the match which will ignite it is hovering ever closer.

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Japan is collapsing, even more so after April. I hope all foreigners have done the sensible thing and converted their wealth already into dollars and euros?? You'd be crazy to hang onto yen.

2 ( +4 / -2 )

Abe: the devil made me do it.

1 ( +1 / -0 )

I"d take this tax any day provided food cost what it does in most other countries of the world. I guess people really take this one hook line and sinker that tax on food is so low here.

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Mr. Salaryman, you have to be a superman for the Japanese Establishment. you have to pay the old and the new taxes, you have to support aging population, aging infrastructure , and you have to compete with world. do not leave japan Mr. salaryman please GAMBATTE

1 ( +1 / -0 )

Oh great! Guess I will have to start eating pigeon meat and making moonshine from now on.

2 ( +2 / -0 )

There is one thing government is forgetting: If debt is 200 percent of the GDP, they can increase the GDP in 200 percent. It will reduce the debt ratio to safe levels as 100 percent of the GDP. Japan will fail if they don't succeed doing that. More taxes mean less consumption.

-1 ( +0 / -1 )

Absolutely a strangle hold taxing food, medicine and baby needs. So you want people to have babies and spend more? Give me a freakin break. Losers. All the politicians are uncaring rich losers.

Watch how waribiki increases amongst the elderly now that their pensions are being reduced 1% and their taxes increased 3%.

All politicians should forfeit their incomes.

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still far lower than in many wealthy countries.

Yes, but in other countries tax isn't levied on every tomato you buy...

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Japan has had the sword of damocles over its head with threats from international ratings agencies threatening to degrade JGBs from their current S&P rating of AA-. If Abe failed to go through with his promised increase in the sales tax a possible downgrade could create bond interest rates to surge. This would be absolutely catastrophic in a still deflationary economy and when demand is weak. Of course Abe' s advisors are aware that an increase in sales tax could have detrimental effects when the economy has only started to recover. The increase in sales tax to 8% is expected to bring in 8 trillion yen per year. The stimulus package of 5 trillion yen is the estimate to offset the initial detrimental effects of the increase.

A few facts that may be of interest to those who think Japan is an impoverished society.

Postal savings: 224 trillion yen Life Insurance savings: 126 trillion yen Corporate cash holdings: 220 trillion yen

-2 ( +0 / -2 )

@sangetsu,

A weak yen and rising stocks and optimism are good reasons for investors to come back to Japan. Japan is not a 3rd world country; it is the 3rd largest economy and 2nd largest developed economy in the world. Singapore, Hong Kong and London have no "natural resources" as you put it, but are major financial and investment centers of the world.

"The average Japanese has very little disposable income"

The have plenty of disposable income, its called savings. Japanese dont spend or go into debt like Westerners do and most live in humble conditions. The deflation situation has made many cautious. They dont have the income they had in the 80s, but most are paid well.. Once they see prices rise, they will start spending. This is what Abe is trying to create.

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fxgai, above, notes that "Noda's diet already enacted the tax. Abe's decision was not to get the Diet to cancel it, e.g. go with the status quo as planned."

True, fxgai. But it has been reported that Abe is avoiding starting the Diet so soon because he expects to run head-on into all kinds of opposition to his many plans. By working around the Diet, he is able to achieve much more in line with his ideas. Sort of a one-man government at this point.

And yes, Noda's government did enact the tax. But it has undergone changes under Abe' & Aso's directions. In the last Diet session Minshuto, Noda's party, accused Abe of lying about the tax, charging that he was altering the original decision.

Anyway, like it or not, we all are faced with a 3% consumption tax increase come next April.

1 ( +1 / -0 )

Which is exactly what Abe wants. Create more foriegn investment, a weaker yen, and hurry up spending before the tax increase...inflation might just start?

Tell me, which foreign country would see Japan as a country worth investing in?

Japan has no natural resouces. Other countries in Asia offer lower labor costs and lower taxes. Japanese banks and financial institutions' largest assets are JGB's. The average Japanese has very little disposable income, so the domestic Japanese market is weak

Tell me again which country would be willing to invest in Japan, especially when even Japanese companies are not.

Inflation is certainly going to occur, but likely at such a rate that 1000 yen notes will be worth less than sheets of toilet paper.

-1 ( +2 / -3 )

sangetsu03, story of the developed world, really.

These countries have all spent too much money, as people keep voting for policies that suck as much out of the other tax payers and future generations and redistribute it to the interest groups of the day. This is the failure of democracy.

Perhaps a good, hard crisis is the only thing that will make people think seriously about what they are voting for?

2 ( +2 / -0 )

He's a yes-man of the Ministry of Finance.

0 ( +0 / -0 )

Japanese banks and investment houses have been quietly positioning themselves for a crash. As for myself, most of my income is paid in dollars. I have the benefit of being able to live in Japan, while being somewhat immune to it's economic vagaries. In fact, my position would improve should the yen collapse. But I like living in Japan, and I like the Japanese people, I hate seeing what is being done to them.

-3 ( +2 / -5 )

edojin,

Notice that Abe did all this without the help of the Diet (parliament).

Noda's diet already enacted the tax. Abe's decision was not to get the Diet to cancel it, e.g. go with the status quo as planned.

marcelito,

People outside the export, finance and real estate industries have the chance to benefit from Abenomics, if they open their eyes and look at the opportunities that are around. Income diversification is an option for anyone with a desire to achieve it, IMO.

0 ( +1 / -1 )

experts say the only real way to decrease the debt is to raise tax to 30%.. yesterday, since that would probably crush Japan the only other way is do decrease wasteful spending which is also almost impossible for the J Gov, the only way things will change if the Japanese economy financially implodes and the J gov will have no choice then.

0 ( +2 / -2 )

@Globalwatcher,

If there were some cuts in spending, your comment might have some merit. However, spending, especially wasteful spending is set to increase.

1 ( +2 / -1 )

"The world market and IMF would interpret this move as Japan is finally getting serious to take care of its sovereign debt problem"

Which is exactly what Abe wants. Create more foriegn investment, a weaker yen, and hurry up spending before the tax increase...inflation might just start?

-2 ( +0 / -2 )

There'll be a bump in domestic sales of durable goods beforehand, and then a great, big dip. Dip-anomics.

0 ( +4 / -4 )

I love the way it says "to ease the debt burden" and is being introduced alongside an additional 5 trillion yen of debt, most of which will make its way to Abe's friends in right-wing construction companies at the expense of domestic consumers. Meanwhile the Japanese people will tighten their collective belts from April, and we'll be in real crisis by next summer. The yen will fall further, so the 14% of the economy that is export-based will gain, and the rest of us will lose. Abe's Reverse Robin Hood policies continue.

There is no right wing or left wing among politicians, these positions only exist among the people. Politicians wear whatever mask is convenient to get them into power. The more right-wing, or left-wing their followers, the easier they are to control.

Both parties will squander equally.

-2 ( +1 / -3 )

@ tamarama "You can't just borrow and spend endlessly, it doesn't work that way. At some point, you have to pay for it." that's why you can be sure that we'll soon see a rise up to 20%, there's just no way around it, debt is 240% of GDP, so you'll have to increase taxes heavily, the VAT is still very low (even at 10%) compared to European countries, so that's the only tax that can be driven up strongly, other taxes can rise but will never make up for it. The pressure to increase VAT further is immense, it's just the clowns in Kasumigaseki keeping it quiet, everybody with a bit of brains knows that either we increase massively taxes, or we'll go default, that's the way it goes. It might not be a real "default" because most of the debt is held domestically, mainly by bullying Japanese financial instutions into buying it, but it will go the other way round, the yen will explode and the financing of the Japanese Banks will get so expensive that they default themselves and the catch 22 is full circle. So, taxes will increase, 8% than 10% and you can be sure, after that, maybe a couple of years (surely shortly before or after the Olympics, we'll see another rise...

1 ( +2 / -1 )

Bye, bye disposable income! Hello poverty!

5 ( +7 / -2 )

With prices rising across the board, we are now faced with an additional 3% on our consumption tax beginning next April. Saw on TV where transportation fares will also rise in line with the additional tax ... including those of train, subway, taxi, airline and other forms of transportation. If you are renting, be prepared to pay higher rents.

As Saxon Salute said above, "Abe was always going to go ahead with this tax hike, but wanted to give the impression he was reluctanct." I'll add one more tidbit to this: Notice that Abe did all this without the help of the Diet (parliament). He refuses to call the Diet into session while he and his LDP comrades busily make any change they want ... freely. Their hands are not tied. Oh, sure, New Komeito gives the impression that they oppose this and that ... but in the end they always tag along with the more powerful LDP.

I and my fellow Japan Social Security receivers face a 1% cut in our SS payments beginning this month. Many of us are going to get clobbered ... again ... as there has been cut after cut in this category.

With prices zooming up and take-home pay falling through the door, nobody is complaining ... loudly, that is. So far everybody seems to be praising Abe and his Abenomics, but how long will this complacency last?

Meanwhile, if you want to buy anything rather expensive, you'd better do it before next April ... because after that everything will cost 3% more. And, as we all know, another 2% increase will come about the year after that.

Japan's high prices ... up, up and away ...

4 ( +5 / -1 )

The VAT will go up to 20%, like in most developed countries, that's the only way, and you can be sure that it will reach 20% pretty soon.

Wow. Talk about hyperbole and hysteria.

It's going to 8% tiger. Then 10% in 2015. Exactly half of what you are suggesting.

The Japanese people have the opportunity to reject the 'drunken sailor' spending of the LDP at the polls on election day - but they never do. They endorse it over and over again. So, the IMF and other external bodies pressure Japan to sort itself out and start reducing it's debt - part of the way they have to do this is by taxing more. But I don't see why, or how, the japanese people can possibly complain about this, when it is they who endorsed the madness in the first place, over and over again. So, it's time to pay the debt...and this is partly how it's done.

You can't just borrow and spend endlessly, it doesn't work that way. At some point, you have to pay for it.

1 ( +6 / -5 )

The ironic thing is that a "stimulus" (or government porkfest) of $50 billion has been announced that will go along with the increase. Since the amount of revenue expected to be raised in the first year by the tax increase was $50 billion, any revenue gained to lower the national debt has already been wiped out. And of course we all know that government projections of expected revenue usually have an error margin of 100%, most often opposite of the direction predicted.

Over the following years the amount of revenue will decline as the full effect of the tax set is. Revenues will decline in step with the inevitable decline of the economy, but still there is no call to reduce spending in any way, shape, or form.

Some people think that the Japanese shouldn't worry about paying more tax, as the Japanese pay a lower consumption tax than Americans or Europeans. What they don't seem to realize is that Japan has a much higher cost of living than America or Europe. The average Japanese household has only about 1/3 the disposable income of and American household, and about half a much as a European household. The Japanese simply cannot afford to pay this tax, and there is no way the domestic economy can grow after this tax hike; it sure as hell wasn't growing before it.

The article states that Japan is experiencing a 3.8% increase in the economy for 2013. What the article doesn't mention is that half that "growth" was due to government spending money that it doesn't have, and had to borrow.

Abe and the current crop of politicians should be thankful for their advanced age, they may pass on before the disaster they created consumes the rest of us.

4 ( +8 / -4 )

As expected: tax your everyday Tanaka more, and cut corporate taxes. You do notice "abenomics" is being used less and less these days, right?

0 ( +5 / -5 )

I love the way it says "to ease the debt burden" and is being introduced alongside an additional 5 trillion yen of debt, most of which will make its way to Abe's friends in right-wing construction companies at the expense of domestic consumers. Meanwhile the Japanese people will tighten their collective belts from April, and we'll be in real crisis by next summer. The yen will fall further, so the 14% of the economy that is export-based will gain, and the rest of us will lose. Abe's Reverse Robin Hood policies continue.

2 ( +5 / -3 )

timing for an increase are always horrible, one day the chicken come back to roost, 50 years of spending like no tomorrow will be followed by many years of hardship... one will have to pay, I'm not happy, I live here and taxes are already hurting but in order to keep this country going we'll have to increase taxes, no other option....of course they should also stop on the spending side but they'll have to take not to crush the economy totally..

-2 ( +1 / -3 )

The world market and IMF would interpret this move as Japan is finally getting serious to take care of its sovereign debt problem.

-2 ( +4 / -6 )

The VAT will go up to 20%, like in most developed countries, that's the only way, and you can be sure that it will reach 20% pretty soon.

-6 ( +0 / -6 )

What a joke! Japan is so totally screwed.

6 ( +13 / -7 )

i think the timing of this tax hike is horrible. companies are still unwilling to raise wages because they are uncertain how abenomics will play out. so far it has improved their balance sheets but until their is long term growth, they won't be passing along those profits to their employees. it should have been delayed for a year and then increased to 10%.

2 ( +4 / -2 )

I think we all know the headline is inaccurate. It should read "Abe to hike sales tax to take money from the man on the street and give it to banks (quantitative easing), construction companies (Olympic largesse) and large corporations in general (corporate tax cuts)".

12 ( +15 / -3 )

Fantastic news for exporters and the tourism industry. The Yen will weaken more on this news leading to larger profits for exporters and a boost in tourists to bring cash in to the country. Whether this works out long term,we are yet to see but always be ready in life for anything, take the bull by the horns and take advantage of these situations.

-8 ( +2 / -10 )

and.... we're off. I'm not debating the merits or need for this increase, however, this will do nothing but slow the economy down. Spending is still out of control, and growing, with a rapidly aging society. I fear that the JGov will continue to spend like drunken sailors, and we'll be back here again in five years.

5 ( +8 / -3 )

Saxon,

You called it like it is, although many people will think otherwise. Non-discretionary expenses will increase for most...Less money for discretionary items.

4 ( +5 / -1 )

There were really no months of uncertainty. Abe was always going to go ahead with this tax hike, but wanted to give the impression he was reluctanct.

14 ( +15 / -1 )

TOKYO — Prime Minister Shinzo Abe will hike the nation’s sales tax in a move seen as crucial to chopping a massive national debt.

I have a great idea on how to decrease the national debt: stop giving money to TEPCO.

5 ( +10 / -5 )

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