'Abenomics' architect calls for BOJ easing, tax hike delay

Smart call, although, it would be better not to increase the tax at all, if not rolled back to a sound 5%. The economy needs to take a priority.

I don't know if Abenomics is really pro-growth. Its target is for 2% growth in ten years. That's aiming very low. 2% is more of the same old same old.

Well now, who's right, Yamamoto or the IMF? The IMF says Japan has to raise the tax to 10% next year as scheduled...

I have invested my yen savings to other foreign currencies. The value of yen is falling, thanks to the rising inflation. And they want more? Unbelievable.

Previously, Yamamoto had said the government should proceed with the second tax increase as planned and signaled no need for imminent BOJ easing, saying the bank’s policy was “on track”. But Yamamoto said he has changed his view following a recent run of weak economic indicators.

Just as I predicted a week or two back. The only way to hit the 2% inflation target is to flood the economy with more money, because consumer domestic demand is not enough to cause it. And, postponing the tax increase just kicks the can down the road some more on the 250% debt level. Plus, allowing the yen to weaken to the 110-120 range will just increase the cost of imports, especially food and energy, even more. Glad it is no longer my financial future tied to such "thinking".

Ah, Japan! Another year older and deeper in debt! They can't just keep borrowing and printing money. They are just making their economic hole deeper and deeper!

The BOJ's monetary easing thus far has been trickle-down. I think in addition they should take a direct focus and put money straight into the hands of consumers.

BOJ monetary easing up to this point has focused on quantitative easing (QE), where the BOJ 'prints' money and uses it to buy mainly short-term Japanese government bonds (fiscal debt). The problem is, the BOJ is now to the point where they have reached their limits in terms of how much short-term debt is available for purchase, and are even paying negative interest rates for some purchases (paying money to lend money). In short, the BOJ is out of ammo in terms of QE.

Another problem, QE is a form of trickle-down economics in that it makes cheap loans available to the rich, with the theory being that they will use the money to create jobs which will put more money in the pockets of Japan's Mr./Mrs. Watanabes who will spend the money and stimulate the economy. However, the money is not trickling down (and almost never does as we learned in the Reagan era).

The solution? In addition to QE trickle down, a direct 'helicopter drop' of cash to consumers might do the trick — both stimulating the economy and putting an end to deflation. Under a helicopter drop, the BOJ would print money and give substantial amounts directly to citizens/residents of Japan (possibly on the basis of number of children in the household to make lives easier for families and encourage a higher birthrate), who would then be very likely to spend what they had been given. Win-win situation for all.

I think the "helicopter drop" theory would be the spark of high inflation, and instant 150 yen/usd as people fight to spend on too few goods. Then when the helicopter cash is gone, prices will remain high for a period even though the money is gone. This would cause a lack of confidence and the yen would go even lower maybe 200. From there you cannot push the snowball up hill and it is game over.

Rich richer, heads to chop. BOJ is led by oyajis, what did you expect ?

I think the "helicopter drop" theory would be the spark of high inflation,

@chomskyite

I realize I'm playing armchair economist here, but I think a phased in and well-monitored helicopter drop, coupled with clear BOJ forward guidance/communication that the flow of funds will end when inflation of 2% is on the horizon, would stimulate the economy and help put an end to deflation without excessive risk of hyperinflation. (Given that QE has massively increased Japan's money supply, I find it amazing that the nation still struggles against deflation).

In addition to QE trickle down, a direct 'helicopter drop' of cash to consumers might do the trick

And make it difficult to move the cash into savings. Maybe by distributing as gift cards. With Mr. Abe's smiling face and twinkly eyes on the front.

Only picture for drop . Try to understand.

The capitalist economy of Japan is heading into a blind alley and no one can cure its sickness.

@sensato @chomskyite The helicopter drop will never happen, not because it is not the solution (it is), but because those at the top can't allow it to happen. They have to maintain the myth that the Japanese government funds itself through taxes and bond issuance (aka corporate welfare). They are only interested in protecting their free lunch, and don't care at all about everybody else.

Guy-Jean, absolutely right. The Keynesians in charge don't have the intestinal fortitude to concede that their entire financial /economic structure is based on fallacies. Their arrogant pride comes first, the good of the people a few notches down. How many of them must be fretting after the Dow's 330 point drop today, I wonder.

The rich don't want normal people like us to understand that governments "create or print" money out of thin air. Governments don't need taxes to fund their expenditure, they literally and do give everyone money, through welfare for single mothers and tax cut to rich people. Taxes are there mainly to give value to the currency, imagine if they abolish taxes, what prevents Toyota or Sony from paying your salary with "points" (bitcoin or anyone of those electronic money), and promising you that you can use those points to buy food from supermarkets they own, or cars, etc.

Governments "create" money, normal accounting methods we use to track our income and expenditure doesn't apply to them.

The rich certainly don't want "helicopter drop" or guaranteed minimal income, when everyone has money, the rich don't feel special anymore, all those high class restaurants are going to be packed by plebeians now, their privileges will go away, they'll never let that happen.

Because all Abenomics is a moetary easing and stimulus.

Abe is going to bottle the tax rise, as expected. For him, it's all about winning the next election and that means upsetting as few people as possible, regardless of the effect on the economy. So bid rigging, money wasted on public works projects, corruption etc. will continue as usual, at least until after the election.

People worry that raising the consumption tax will cause people to cut back on spending, but what's the flip side of not raising the tax rate?

With your government having accumulated a quadrillion yen of debt, and adding an extra 50 trillion more each year, spending 26 trillion yen of tax money servicing the debt even with interest rates as low as they are, would it not worry people about the future ability of the government to pay pensions? And if it worries them, would they not save more money as a result (or exchange their yen for something else)?

Again, why is it that the government should not raise the consumption tax rate?

Yamamoto's plan gets an F.

Well, looks like we keep hearing all these from "abenomics architect", next time maybe a "woman minister", after that maybe a "university professor" speculating watever they want to give to the media about Abenomics and where it next path will be..I wonder where is Abe in all these.

The BOJ's monetary easing thus far has been trickle-down.

It is trickle-down for a reason. When you give a lot of money to the average person on the street, they simply spend it quickly on toys. The money is then gone, the toys have little real value aside from a dose of instant gratification. Just take a look at how a typical lottery winner almost invariably returns to his or her previous financial level a couple of years after they win their prize. Giving momey to regular people is like giving it to the government, there is a short-term economic benefit, but in the long term, the money might just as well been burned.

Businesses use money differently, rather than simply spend their money until it is gone, they try to make it grow. Money spent is money thrown away, money invested is what provides goods, services, and jobs. As a self-employed person, I spend as little money as possible on myself, the majority of the money I make is reinvested more goods, which are made by people whom I pay to make them. And then I have to pay other overhead, such as rent, utilities, and other expenses. By reducing my taxes, I can afford to buy or produce more goods to sell, which means more people are needed to make or provide the goods.

"Trickle-down" economics gets a bad rap from many, but in reality, it is the most effective way to cause fundamental growth. The economic "stimulus" we have seen in America and Japan is not trickle-down economics. In America, nearly every penny of stimulus money has gone to government union employees and their pensions. Precious little has made it into the hands of businesses or private sector workers. Is it any wonder why there has been almost no growth, and workforce participation ("unemployment" figures are black lies), at 62.8%, is the worst since 1978? In Japan, the money is spent on crony-capitalist projects, and once again, little finds it's way to domestic businesses or working people. And of course, growth in Japan is stagnant.

I have been hold about $300,000 in US Dollars. I would love to see ¥150 to the dollar. Then I would buy yen like crazy.

When you give a lot of money to the average person on the street, they simply spend it quickly on toys.

That's quite a patronizing view of the 'average person'. Sure, I wouldn't disagree that some people would waste it - but plently of people would have a vested interest in trying to make their money grow. By keeping the money away from those people you stifle innovation and start-up potential.

Money spent is money thrown away, money invested is what provides goods, services, and jobs

But where is the money invested? In creating jobs in Japan, or building factories in China? Or worse a lot of companies just sit on that money or shore it off to tax free havens. Even if the company does use it to grow their own capital - there's often no direct effect on the standard labor wage.

"Trickle-down" economics gets a bad rap from many, but in reality, it is the most effective way to cause fundamental growth.

Where? Trickle-down gets a bad rap because there's no evidence that it works anywhere. Where is the economic boom following the Bush-era tax cuts?

"would it not worry people about the future ability of the government to pay pensions?"

Doesn't worry me. When they pay pensions, they dont withdraw money from an account. They press a button that credits your account. Then you spend the money, generating economic activity.

"This weak yen sucks!"

Heh, you wouldn't want to have lived in Japan earning yen in 1984, it took around 240 yen to buy a dollar back then.

They already gave people about 10,000yen each a few years back, it wasn't near enough to have any impact.

If they did a decent money drop in at the bottom The flow up would occur naturally and end up in the big business coffers anyway if done right, instead of putting money into the top put it in at the bottom, people buy toys yes sure, but the govt gets its tax on each spend, others could pay down some debt, others would invest it, some would save it but it would flow up to those in business each time spinning off sales tax to the govt and also stimulating the economy.

And debt would be reduced

It is the way to go if there is to be a money drop, but make it effective and worth while.

Sometimes the govts reduce taxes which is another method but in this case cash in the hand would work best.

Japan does need to pare down its debt but first it needs to get the economy moving, then it can raise the sales tax a little further down the track.

The weak yen sucks for society overall - the common man has less purchasing power for imported goods, and Japan is an importing country for so many things. But on a purely selfish level, I'm loving it, as we get paid in foreign currencies by about 2/3 of our clients.

i say no stimulus package anymore

Stop this stimulus.... It is nothing but a quick fix with huge ramifications down the road.

If the market crashes and companies go bust, great... start anew and don't bail out companies that are "too big to fail".

If the system/companies fail, they fail for a reason.

That's quite a patronizing view of the 'average person'. Sure, I wouldn't disagree that some people would waste it - but plently of people would have a vested interest in trying to make their money grow. By keeping the money away from those people you stifle innovation and start-up potential.

Unfortunately, it's true. On a percentage basis, how many people are employees, and how many are employers? If you were given a lot of money, what would you do with it? You would say the same thing everyone else says, they would pay off their debts, buy something nice for themselves, and use the rest wisely. This almost never happens, and I mean never happens, in reality. I once went to cover a party held by one of the American states to celebrate the ten year anniversary of said state's lottery. All of the former big prize winners were brought to the state capital at the state's expense to tell how winning the lottery had changed their lives. Remarkably, almost every single winner in attendance had blown through all of their winnings, most were no better off than before they won, many were worse off, some said that winning the lottery was the worst thing evert to happen to them. This was the last "winners" party held in any state. We were encouraged not to report the story.

Wealth is not about money. People are not wealthy because they have money. Most wealthy people were not born wealthy. Wealth comes from hard work, thrift, some risk, and a large dose of motivation. There is no magic to it. But precious few ever try, 1% is probably the most accurate figure. If you want to succeed, and work hard, you probably will. If you don't care, and don't try, you can come here and rant about how you are getting screwed by the 1%,

But where is the money invested? In creating jobs in Japan, or building factories in China? Or worse a lot of companies just sit on that money or shore it off to tax free havens. Even if the company does use it to grow their own capital - there's often no direct effect on the standard labor wage.

The money is invested wherever there will be a return, and this is how it must be. If the companies offshore their work overseas, whose fault is that? The companies? Or the government which has raised the cost of doing business to the point that companies can no longer earn a profit? Remember that most companies pay much more in tax than they do in payroll. Japan's tax is more than 35%, and, unlike in other countries, the consumption tax in Japan is also applied to companies' expenses. Then there are the local taxes, licenses, and other hurdles which Japanese businesses must jump over. Every yen spent on tax is yen which cannot be spent on payroll, benefits, new buildings, or other things. As for hoarding cash, or holding it in "tax havens", the last thing companies ever want to do is sit on cash. Cash which is not working or not being used has no value, none at all. If companies are sitting on it, they are doing so because they can't find a way to get a return on it. It is their money, they worked hard to get it, and if they lose it all, they put themselves, their employees, and their investors at risk. Look what happened to GM, they never bothered to set aside a cash reserve, and they paid the price (or rather, the taxpayers were forced to pay, we can't have union workers risk their pay and pensions when we have a democrat president who can force others who may not vote democrat to pay the wages of union workers who always vote democrat). Ford Motor Company was on the brink of bankruptcy in the bad-old-days of the Carter administration, and rather than repeat such a mistake, they accumulated a cash reserve to get them through the "great recession". Ford did not require a taxpayer funded bailout, did they?

The contemptibly stupid will say that rather than let companies offshore to cut costs, they should be forced to stay, or penalised if they leave. This has been tried before, and it has never succeeded, it has only resulted in collapse.

Where? Trickle-down gets a bad rap because there's no evidence that it works anywhere. Where is the economic boom following the Bush-era tax cuts?

Evidence of trickle-down economics is hard to find when it is never actually implemented. The Bush tax cuts didn't make much difference either way, but you have to remember the stock market losing 40% of it's value after the Sept 11 attacks, and the heavy cost of fighting 2 wars. Without these added losses and expenses, things might have been different. But things could have been worse without the tax cuts. And we have to give Bill Clinton some credit for implementing welfare reform, though a large reason he did was because there were enough votes in congress to overturn any veto. In the end, about 7 million jobs were added to the economy during the Bush years.

7 million jobs is not a great number for a 7 year period, but from 2009 until now we have seen a net decrease in the number of jobs. We have seen average wages decline, and poverty increase. One of the very first things done by Barack Obama when he was elected was to quietly abolish Clinton's welfare reform act. The "Affordable Healthcare Act", since it is now legally classified as a tax, amounts that he largest tax increase ever levied against the middle and lower classes, but fortunately for Obama, the full effect of these costs will be felt in the next administration's economy, which will blame him, just as Obama blames Bush, who blamed Clinton, who blamed the previous Bush, et cetera, ad nauseam.

The problems all industrialised countries are facing are the result of them handing control of their economies to their governments. This is not the government's job. The people, job providers and those who work at jobs, are responsible for the economy. They create the jobs, they earn the money, they spend it. And, unlike politicians, they live within their means, and exercise economic responsibility (generally), they tend to be able to do quite well on their own. But as we have given more and more of the economy over to governments and given them the responsibility to provide pensions, healthcare, and more more things we used to provide for ourselves, the situation has gotten worse. For every dollar I save for my retirement, I will get more than a dollar in return when I turn 65. For every dollar I give the government for my Social Security pension, I will be lucky to get back 20 cents, and that is if there is any money left over when I turn 65. At the current rate of disbursement, the Social Security trust fund will be insolvent when I am 65. What are all the poor suckers who have been paying into this system going to do if they can't get anything back?

We don't need the IMF, BOJ, or Federal Reserve to do anything about the world's economies. We need these self-serving fools to get their hands off our money. We need to get their hands off setting interest rates, issuing bonds, and then buying them back themselves. We need them to stop pumping low-interest "liquidity" into the markerts, which is allowing companies to do the same borrow-and-spend nonsense to pump up their stock values.

Unfortunately, it's true. On a percentage basis, how many people are employees, and how many are employers? If you were given a lot of money, what would you do with it? You would say the same thing everyone else says, they would pay off their debts, buy something nice for themselves, and use the rest wisely.

This almost never happens ... I once went to cover a party held by one of the American states to celebrate the ten year anniversary of said state's lottery ... Almost every single winner in attendance had blown through all of their winnings, most were no better off than before they won.

Sangetsu, I have to agree that this is a patronizing view of the average person, and want to remind you that "people who buy lottery tickets" are hardly representative of John and Jane (or Taro and Hanako) Q. Taxpayer. People who buy lottery tickets regularly are already predisposed to make bad financial decisions -- they made one when they bought a low-odds lottery ticket to begin with.

I'm sure many people here have come into significant amounts of money and managed it perfectly well. I myself once received nearly two years' take-home pay in one big bonus when the startup company I worked for was sold off. That money sat unspent in my bank account for four years until it came time to purchase my home; I didn't even buy one single luxury.

Many people are capable of such patience -- we just don't notice them because they don't mention the money they've got and have successfully put it out of their own minds.

We don't need the IMF, BOJ, or Federal Reserve to do anything about the world's economies. We need these self-serving fools to get their hands off our money. We need to get their hands off setting interest rates, issuing bonds, and then buying them back themselves. We need them to stop pumping low-interest "liquidity" into the markerts, which is allowing companies to do the same borrow-and-spend nonsense to pump up their stock values.

This part of your post I agree with entirely. Every time any of those three organizations does something or suggests something, the lower/middle class taxpayers are the ones bearing the brunt of the costs.

If Kozo Yamamoto, the so called Abenomics architect has been wrong for his preaching all this time, why should Japan’s policy makers listen to him again? Yamamoto has little credibility to back up his advocacy now.

Can someone hush him up for his voodoo economics “Sashimi” ?

would it not worry people about the future ability of the government to pay pensions?

I think it is a rather alarmist view that the government won't be able to pay out pension benefits. One, the government pension plan payouts are meager, to say the least. Seniors will be better off on their company pension plan than on the public one.

Again, why is it that the government should not raise the consumption tax rate?

The economic data coming in clearly shows the consumption tax hike has had a negative impact on the economy. The public debt can't be reined in if the economy is in a recession.

This is not to say the consumption tax shouldn't go up. The economy has to be the priority. Look at the bleak job situation for the young. Stagnant salaries, in part-time work, with less benefits and pay.

A better approach would be to foster higher economic output. Cutting taxes on income, and profits to start. Openning the Japanese economy to foreign investment, and free trade would also go along way to boosting the economy.

Japan's tax codes, the government's often heavy hand (and reckless) intervention impede Japan's ability to grow. They discourage foreign investment, and multi-nationals that could create more jobs, and opportunities.

Jobs, investment, consumer activity: these would raise government revenues much higher in the long term. The consumption tax may bring in a little more revenue, but those gains will be negated by poor economic output, and low activity.