In election year, weakening economy may force Abe's hand

Increase stimulus? His policies artificially keep the economic numbers up and keep the people quiet at the same time.

Abe's policies are out of line with reality.

Abe's policies are out of line with reality.

Ditto this article and most that seem completely detached from the day to day lives of people who will be most hurt by yet another regressive tax hike.

In 2012, the then-ruling Democratic Party of Japan agreed with the LDP and Komeito to raise the value-added tax in two stages from 5 percent to 10 percent.

For those feeling wistful about that brief interlude when the LDP was in opposition, this should clear that right up.

Expected, expected. Abe missed, intentionally, two biggest opportunities for Japan: One Belt One Road, and Asian Infrastructure Investment Bank.

Japan has the best geopolitical position on the planet of Earth. Next door to China, the engine of the world, Japan shares the Confucian culture. China is both the biggest Market for Japan to absorb massive products, and the largest bridge linking Japan to Europe for logistic transport. For the past 5 years, Abe totally destroyed the trust between Japan and China with his democratic security diamond. Now he can't even secure Japan's prosperity, what an incompetent PM.

When I read articles like this, I am reminded once again of the huge challenge that confronts Japan. And the truth is that no Japanese politician, including Abe, knows how to solve it.

Robust economic growth requires robust demand for goods & services. And that demand either has to be generated domestically or externally via exported goods / services.

Japan's post-war economy was built upon its exports, which fueled its rapid growth, a model copied by Korea and then by China. Domestic demand was a function of that export-driven economy.

Alas, those days are gone. And with the slowdown in China and Europe, many domestic companies will face challenging times, particularly SMEs.

At the same time, the government's finances are in a precarious position. Already saddled with significant debt, the government does need additional revenue to fund increasing social welfare outlays.

The ideal way would be to grow tax revenue off of increased taxable income or increased consumption rather than actually increasing tax rates. However, that will not happen if the economy is not growing and people are not spending more.

Conversely, any increase in tax rates at this point, including the consumption tax rate, would actually likely backfire, reducing taxable income and/or consumption, thus negating the increase in tax revenue due to a rate increase. And the knock-on effect would be to further reduce domestic growth / demand, creating a vicious circle.

The truth is no politician knows how to solve this in Japan. What everyone has been doing, especially the LDP and the bureaucrats, is using artificial measures to prop up the economy to buy more time, in hopes of some miraculous solution.

And there is none. There really isn't.

Tough times are ahead, with the huge growth in the population of senior citizens a time bomb that will explode. It is just a matter of when.

Uggh, It is still the morning and I suddenly feel the need for a double shot of Yamazaki!!

Japan isn't hopeless. Japan must choose between pro-China and anti-China. As soon as Japan joins China, GDP growth at minimal 3% is guaranteed.

There are many Japanese companies producing goods in China and flourishing!

Any company will look for incentives such as a low or zero tax rate on imports or export of goods.

Where are the incentives in Japan?

Where are the free trade zones?

Japanese businesses are even choosing Korea over Japan for manufacturing.

Japanese politicians and civil servants have as much imagination as a block of wood!

Time to face the music, eh abe?

All this time you were hoping the economy would mold itself to your agenda, and you kept falsely claiming - on a number of topics - that everything was under control and the economy was at an upward trend. None of your many stimulus plans or vows or urges for change really did much did they now.

But I bet you're going to hold a press conference really soon where you will deludingly proclaim once again that Japan is a growing, robust economy and that we all need to put our trust in you.

You live by the Q.A., you die by the Q.A.

For those of you who don't know how it works, i'll try to give you a very oversimplified explanation.

The government prints money and give it to the banks, they in tern encourage loans, both business and consumer loans. However those injected money are not based on economic output, which means they artificially cause increase in inflation. The increased money supply devalues the currency thus causes your money to buy less stuff, in turn, it also causes consumer prices to go up.

In the meantime, the increase in consumer loans and business loans results in artificially high demand for goods and services, a demand that would otherwise not have existed, this in tern leads to more businesses hiring people and expanding production, all boosted by the increased demand from consumers thanks to the injected money-loans. This part usually lasts about 2 years, and is analogous to getting drunk. Then comes the bad part, analogous to hangover.

When the injectd money ends, consumers can't borrow anymore, this leads to a rapid contraction of demand, businesses now have to fire all the people they hired before, and cut all the extra production they paid for, and a lot of it was paid with loans, which they also have to give back now, but they can't, so many businesses end up bankrupting and closing down. A lot of other businesses who were opened only because of the new demand now can't operate anymore, so they too have to close down. The loans that the consumers borrowed will too have to be returned, which means consumers will now have even less money than they did before, as part of their paychecks now go for paying back the previous loans.

The rapid closure and laying people off leads to an increase of unemployment and decrease in demand for workers, all this combined with the still rising prices and decreasing purchasing power leads to a minor crisis, which would last about 2-3 years until the businesses adjust to the new market conditions, HOWEVER, to prevent this minor crisis, governments inject a new package of printed money into the banks, analogous to getting even more drunk to avoid hangover, thus creating a second cycle.. and then at the end of the cycle, they do the same, inject a 3rd one.. and then a 4th one.. and with every injection, the bad investments increase.. the bad loans increase, the amount of people that are going to be fired increase, the amount of businesses that will bankrupt increase.. and of course, the rate of inflation increase with it too.

Any new wage increase is merely an adjustment of your old wage to match the rate of increase of money supply, but not the rate of increase of consumer prices. What could've been merely a minor crisis will be a big recession. There is no painless solution. All the debt and bad investment will be liquidated out of the economy one way or another, sooner or later. Abe or any next government is forced to either tell the truth to the people, or keep doing what they are doing now and keep prolonging the inevitable.

or even postpone an upcoming increase in the consumption tax

He always raises it before a trip to Europe

Pay people to pay off their loans, not banks to create new loans

We are doomed. No opposition. Start growing your own vegetables and take up fishing.

A recession would also put pressure on Abe to postpone the consumption tax hike scheduled for Oct. 1

They should cut that tax back to 5% and CUT SPENDING already!

Akie

Japan will never join the one belt road plan of China and China is the world's largest slave industry in the world for its factories. China will be destroyed soon. Don't talk about Japan, we have no interests in China and communism.

Also a major reason why the Nikkei stock market is up is because of purchases of shares (indirectly) by the BOJ...not organic demand.

On a purely cultural level, Japan has MUCH more in common with China and Korea than with the west. It's hardly even comparable. Which does kind of make Akie's statements scary, as it wouldn't be surprising if China wanted to take over the entire region, and turn it into one big East-Asian regime.

Kenji Fujimori, your education is so low that I will not judge Japanese people because your stupidity. . I live in the house opposite to the Emperor's. Meet me there tomorrow.

@ Alfee - stop calling people "sock puppet". Its offensive. Just because people disagree with your opinion does not make them sock puppet.

I think we are being softened up for an announcement by Abe of a postponement in the consumption tax increase. He will then call an election to capitalise on his broken promise.

I've always said that Abe doesn't have the guts to increase the consumption tax and will use any opportunity or excuse to avoid raising it. All Abe can do is spend money like a drunken sailor: it's the only policy the LDP have.

Sorry for interrupting the bickering.

Don't worry, this guy will come out of this smelling like roses. Teflon, like his master across the Pacific.

Japan needs to put Abe and his LDP party into the garbage can of history. Japan needs to get along with all of the people of Asia and stop sucking up to the Americans. Japan needs to join the Belt Road initiative. The Americans will screw Japan over and over again. They just want to keep their bases in Japan which can be used in a first strike on China and Russia.

The PM of Japan needs to be on Japan's side first!

It would seem that Abe’s three arrows of economic reform have turned on him and burst the bag of hot air he has been spouting for nearly a decade.

He has achieved nothing of significance in his economic reform. He hasn’t got women back into the workforce or addressed equal opportunity employment. He hasn’t addressed the child care and aged care crisis. He hasn’t reduced the public debt (he has increased it twice). He hasn’t given families more benefits. The only things he has achieved is given corporation tax cuts, which he ‘urged’ companies to pass on as salary increases, which never happened. And, he has increased the sales tax (soon to be twice). He is a fraud! Abenomics = FAIL!

@ilovecoffee

"The government prints money and give it to the banks...."

Um, no. The Bank of japan, which is not the government, buys bonds from the banks and pays in electronic yen credits. There is no "giving" of money, nor is any money "printed."

This part usually lasts about 2 years

Really? Japan has had its easing program for nearly 20 years, and today is amid its longest growth streak in modern history.

Japan has had its easing program for nearly 20 years, and today is amid its longest growth streak in modern history.

Really well said, Jeff Lee. Things have been ticking along well, the growth streak is continuing, and the sky won't fall in when the needed consumption tax goes up to 10%.

Abenomics = FAIL!

Most economists disagree.

He hasn’t reduced the public debt (he has increased it twice).

What many people don't grasp is that this debt is owed to Japanese, not foreign bodies. Unlike most foreign nations. If the debt is called in, the Japanese government will be able to take care of it by issuing government bonds. They could pay it off whenever they want. Not exactly a crisis!

Beat them!

With truth?

,

Um, no. The Bank of japan, which is not the government, buys bonds from the banks and pays in electronic yen credits. There is no "giving" of money, nor is any money "printed."

That's why i said oversimplified.

Really? Japan has had its easing program for nearly 20 years, and today is amid its longest growth streak in modern history.

Japan had a lost decade. Then it became 2 lost decades. Then it became 3 lost decades. And now its headed towards the 4th lost decade. Do you wanna know why? Because they keep injecting money, and at the end of the decade, they let some of it get liquidated. GDP growth is not the same as economic expansion. The export industries are benefiting - yes, but at the expense of everyone else. There are so much negative consequences of this, i already listed some above, i could probably list 100 more. Purchasing power is decreasing, that is something no Japanese can deny. Your money buys less and less, and all your savings evaporates slowly. You can't be drunk forever, sooner or later you have to stop drinking, and then face the music. All these Q.A.s have created so much distortion in the economy, so much bad investment, so much bad of everything its unreal. There is no painless way out.

FarmboyMar. 24  09:35 pm JST

He’ll be re-elected even if he doesn’t run because the opposition, and even his own party, have no other competent people available.

Abe's competent? Who knew?

JeffLeeMar. 24  04:17 pm JST

Japan has had its easing program for nearly 20 years, and today is amid its longest growth streak in modern history.

A growth streak that does not actually appear to be benefiting anyone.

@ilovecoffee

Because they keep injecting money,

They remove an equal amount of assets, ie, bonds, from the system. It's a swap rather than an "injection." That's why the "money printing" causes no inflation.

That's why i said oversimplified

By misstating the simple facts?

Japan had a lost decade. Then it became 2 lost decades

Japan's GDP per capita has basically been in line with OECD averages over that time. At times, Japan has outgrown the US. and other major economies on that real basis. GDP is merely an aggregate, which assumes bigger is always better, even though the best economies, like Switzerland or Singapore, are very small.

@simon foston

A growth streak that does not actually appear to be benefiting anyone.

I've been in japan quite a while, and the quality of housing, infrastructure and even healthcare is way, way better now than it was when I first arrived.

If the debt is called in, the Japanese government will be able to take care of it by issuing government bonds

The debt IS government bonds: you cannot pay it off by issuing more of them. Perhaps you meant to say the the government could just print Yen, just like Venezuela prints whatever their currency is. You can see how well that works.

JeffLeeToday  06:42 am JST

I've been in japan quite a while, and the quality of housing, infrastructure and even healthcare is way, way better now than it was when I first arrived.

I've been here a while too and I haven't seen any really impressive developments to indicate that the country is doing particularly well. And what about jobs and income?