politics

Gov't cuts economic view after sales tax hike

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Policymakers and private-sector analysts expect a temporary dip in economic activity in the current quarter due to the sales tax rise to 8% from 5% on April 1, before returning to moderate growth in the following quarters.

There is nothing "temporary" about the "dip in economic activity". With the population falling rapidly (nearly half a million in 2012, and hundreds of thousands last year) there are fewer and fewer people to fuel the so-called moderate growth they are optimistically predicting.

4 ( +5 / -1 )

Also the increase in nominal Consumer Price Index has been almost solely due to higher energy costs. That’s because a weaker yen increases import costs and Japan needs a lot of energy as it isn’t self sufficient. More importantly, it means costs are going up and wages are only keeping pace. In other words, real wages aren’t growing, stuck at 0%. With real wages going nowhere and a consumption tax hike, it doesn’t make for a bright picture. And the bigger problem is that government debt is continuing to rise. Why is this an issue? Well, when you have government debt at 24x government revenue and interest expenses taking up 25% of government revenue, it becomes a very big issue. Rising interest expenses mean Japan has less to spend on other things, such as social security for its ageing population.

Now, the government has several choices to fix the problem. It can cut the debt, but that would induce an immediate recession or worse. Or it can seek to raise revenue and GDP. This is what the government has chosen to do. Increasing nominal GDP is easier said than done though in a country that’s been going through two decades of deflation. To give you some idea, current nominal GDP is at the same level as it was in 1995.

3 ( +3 / -0 )

No one saw this coming.

1 ( +2 / -1 )

Another tactic to promise you the heaven and sock it to you, you the people. Print more money out of thin air and let the people pay in higher taxes and leave a big debt that you can't possibly pay back. It's time for the people to wake up to these schemes by the bankers to enslave the world in debt.

5 ( +5 / -0 )

The underground economy will flourish.

2 ( +3 / -1 )

The government said the economy was on track for a moderate recovery, in keeping with its main overview at its March assessment, but noted there was some weakness in demand after a sales tax increase went into effect on April 1.

"but noted there was some weakness in demand after a sales tax increase went into effect on April 1."

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- I AM SHOCKED!!! REALLY?!? THEY DIDN'T SEE THIS COMING?!

What I am not shocked about is how many businesses out there 'cashed in' on the tax hike and raised prices in a smoke and mirrors kind of way. Shameful!

5 ( +6 / -1 )

govt imposes inflation, tax hike and then downgrades economic outlook? amazing, in japan only !

3 ( +4 / -1 )

" No one saw this coming."

Nope. No one. The zombies still think Abenomics is the solution. Well, maybe it is...if it's the plan to bring about Abegeddon.

2 ( +4 / -2 )

Cue the music, Rossini's William Tell overture, yes Japan needs Abe san's elusive third arrow, the arrow that will herald the much needed structural reforms, the arrow that will and I quote 'position Japan’s economy to compete in the 21st century', irrespective of population shrinkage. Less government needed here, so cut government spending, there is always areas where governments waste tax payers money, one needs to take a closer look.

0 ( +1 / -1 )

Why is Abe still PM?

He's creating nothing but gloom and despondency and the threat of war.

Thanks to him, Japan is teetering on the edge of a very deep abyss.

4 ( +4 / -0 )

" More importantly, it means costs are going up and wages are only keeping pace. In other words, real wages aren’t growing, stuck at 0%. With real wages going nowhere and a consumption tax hike, it doesn’t make for a bright picture."

@sfjp, while that's true, it's incomplete. Wages 「appear」 to be rising (for a very few), but in actuality the buying power of those wages has declined proportionally with the massive, unprecedented currency inflation. As the three current major currencies race to the bottom, the biggest losers will be the people who will be left with nothing but the physically worthless paper in their wallets and the soon-to-be meaningless numerical deposits in the banks. The wealthy and well-connected will be fine, however. They'll benefit from some inner-party bail-IN scheme like was tested in Cyprus.

2 ( +2 / -0 )

Talk is cheap but its about time that you doomsdayers put your money where your mouth is. What a fantastic time to short JGB's; short yen against USD, Euro, AUD, NZD, CAD; short Nikkei225 and buy credit default swaps. If Japan is going down the drain then you doomsdayers are absolutely nuts if you don't back the truck up and short all the Japanese worthless assets. Holy cow 10year JGBs at 0.6%! ; must be the short of the century!? Come on guys Japan is doomed isn't it with markets all being wrong with abundant mispricing...yen down the toilet, interest rates to the roof; short the mother, yeah baby!! ..go back home a billionaire!!

0 ( +0 / -0 )

@randonman, gloom is reality. Feel free to play that game if you dare. My bets are hedged otherwise.

1 ( +2 / -1 )

I don't necessarlty think the Nikkeri will plummet. It may go sideways or up and down. I am not sure where the yen is heading either, but I do know that the standard of living for most Japanese has dropped in the last 16 months (especially for those in their 20s, 30s and 40s.) On another note, I cancelled a trip to Hakone and had a "staycation" instead as their are few value plans to be had (at least in Europe, you can go from Amsterdam to Paris for 9 euro if you book a bus in advance). I will probably just spend more of my money overseas, where I get more value.

0 ( +0 / -0 )

@Knowbetter @John Galt

The pullback from the last-minute demand has been within expectation

Policymakers and private-sector analysts expect a temporary dip in economic activity in the current quarter due to the sales tax rise to 8% from 5% on April 1, before returning to moderate growth in the following quarters.

That is to say, they did, in fact, see this coming.

Please read before you comment, thanks. Because I want to agree with you on this, but it doesn't help your case when your indignation is misplaced.

-3 ( +0 / -3 )

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