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Japan economy 'faces same risks as Europe'

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Opponents...say any increase in household bills would derail Japans uncertain economic recovery.

There is no such thing as "recovery" anymore. The long-term future for most developed countries is stagnation, at best. Japan, especially so, given its shrinking population.

3 ( +7 / -4 )

From who Japan will ask for bailout money?

3 ( +3 / -0 )

Again, not a word about cutting wasteful spending. As a former bureaucrat it's not in Noda's vocabulary.

9 ( +10 / -2 )

How do you interpret this photo?

10 ( +9 / -0 )

Noda - doing the thing he knows best- being a mouthpiece of the Financy Ministry. How about addressing the obvious fact - Japan ,s debt problem was caused by decades of bureaucratic waste and white elephant project spending. Now, what does Noda do? Instead of cutting the waste as DPJ promised to do at the election he breaks those promises and continues it unabated ( ie. restart of Yamba dam, record budget requests by govt. ministries... ) and slugs the average Joe with an increase in consumption tax. Let the spending spree continue for the benefit of the cronies.....and then he lectures with a straight face about fiscal responsibility? The sooner he gets kicked out of PM' chair the better.

10 ( +9 / -0 )

Noda is just trying to talk down the yen. If you net off the Japanese government's assets, the debt-to-GDP ratio is only about 100%, which is not good but not too bad (about the same as the US). And it has a ton of foreign exchange deposits, it is the world's largest creditor, etc. etc. etc. Japan is not nearly as bad off as the story goes. He's just trying to talk down the yen. But don't tell anyone or it won't work.

2 ( +3 / -2 )

Who is lending the Japanese government all this money?

Answer: Japan Post Bank and the Bank of Japan

Who owns Japan Post Bank and the Bank of Japan?

Answer: The Japanese government.

It's true that the Japanese government has the equivalent of 14 trillion USD of debt. But they also own the equivalent of that in Assets on another balance sheet.

It's like borrowing $200,000 to buy a house and telling everybody that you're $200,000 in debt. But if you count the fact that you own a house worth $200,000 then it all evens out.

It's as if they have two wallets and they take your tax money, put it in wallet A, then they transfer that into wallet B and point to wallet A and claim "look we have no money, we need to tax you again."

Why don't you tell us who owns all those JGBs Mr. Noda?

6 ( +7 / -3 )

@ paulinusa:

How do you interpret this photo?

I told them make my haircolor natural-looking. Does this look natural to you?

My mental picture of this guy is in a high-collar, black-satin cape, with vaseline on the hair, and fangs exposed...

-1 ( +0 / -1 )

“Countries like Italy and Spain have made desperate efforts

No they haven't. They've just desperately begged for more money to be printed. None of these bloated governments have even considered dramatically cutting government spending, which they label as "services" to keep themselves in power.

Japan as well has been wringing its collective hands over this tax increase, as if it's the only thing they can do. Why not cut government spending in half? Why not stop building roads to nowhere and replacing street lights that don't need replacing? Why do you need to increase taxes when half the budget for rebuilding Fukushima hasn't even been spent yet?

3 ( +5 / -2 )

I have to agree with two posters regarding spending cuts. There's a massive amount of waste in government spending. The project in Setagaya for example is costing billions and it's only benefit is making it easier, and faster for drivers to go to Shinjuku from Shibuya.

The EU has had consumption taxes for decades, and look where they are now. Crushing public debt, coupled with a banking industry that has poor management practices. Doubling the tax will not accomplish anything positive.

The cost of living in Japan is high enough as it is. The 5% consumption tax is more than reasonable, and should be left alone. Cut WASTEFUL spending first. In fact, subject government (at all levels) to audits to root out waste, corruption, and mismanagement first.

PM Noda falsely assumes that Japanese people's buying habits won't change, or will go up. Sure, purchases for essential goods and services (food, healthcare, transport) won't change much, but disposible net income will be limited.

The tax increase will cut into the profit margins of many businesses, forcing them to raise prices, lay off staff, or put off any plans for expansion.

Noda's plan is short-sighted, unoriginal, and will only make it that much harder for individuals and families to make ends meet; businesses struggling through this recession will ultimately suffer as people hold off on purchases, or cut back on them.

1 ( +3 / -2 )

Why do we always expect markets to continously grow and watch in jealousy as places like China grow incredibly fast, ofcourse places like China are growing faster, their potential has hardly been tapped, European Nations, the North Americas and Japan have all long since tapped that potential and can only hope to hone it

4 ( +4 / -0 )

We wouldnt need half the taxes that we have if it wasnt for wasteful spending. New taxes will result in spending more.

4 ( +5 / -1 )

To begin with, Japan is not Europe, or more exactly the EU. Japan does not have Greece, Italy and Spain on its back. It does not have the dreadful euro to contend with. That's a big difference. Look at the European countries that are not in a crisis, like Sweden, Denmark and Norway. They deal in kroners, not euros. Thus, while Japan is affected by the EU crisis it does not have an analogous crisis on its hands.

Japan's troubles are its own. The aging population is a problem because of Japan's xenophobic insularity. Japan's insularity is also party responsible for its post-burst bubble woes. There is no Silicon Valley to spark technological innovation in Japan, for example, because that requires an openness to not natives and a common international language, which is English. Japan's schools product followers and conformist functionaries who are programmed to live someone else's lives.

And then there is wasteful spending that posters have cited here and Noda ignores. There are simply way too many pork barrels in Japan. The Monju faster breeder reactor, a failure, comes to mind. Supporting a useless whaling industry is another. (There is a huge stockpile of whale meat that no one wants.) You can name others.

Noda's solution to Japan's problems is simple-minded: raise the consumption tax. This is exactly what Japan does not need. Japan's already overpriced goods and services are putting a strain on the average post-burst bubble worker in Japan. The hike in the consumption tax is going to push a lot of people over the edge. That will mean more welfare spending and an increase in crime. As has been said in this thread, people will spend less money on non-essentials, which will result in small businesses snuffing it and big businesses reducing their work forces, which will in turn push more people over the edge. You can already see consumer parsimony happening now. I believe the result of this will not be higher prices but lower prices because of reduces demand, which will mean the government will be pulling in less money from its increased consumption tax.

Noda is not ill-intentioned. He is just not very bright and beholden to too many vested interests. He is without a doubt the worst prime minister this country has had since Koizumi. (Great photo of Noda, by the way: looks like he is shooting himself in the head).

There is one big crisis looming on the horizon that will affect Japan more than the EU crisis. This the coming burst Chinese bubble.

0 ( +4 / -4 )

I have a great idea for allowing Japan to be place with vigor where a lot of old people live. Make mandatory retirement illegal. A lot of old people can continue working and this will compensate for the short supply of workers due to the falling birth rate. It will also reduce the number of needy people on fixed incomes.

One thing I forgot to mention. Any added financial burden on working people here will contribute to a lower birthrate, meaning fewer consumers to pay the consumption tax in the long run.

1 ( +1 / -0 )

... grab the chance of being a role model in the world ...

Yes, because the world wants to be like Japan, ... dream on. I think JP is still trying to ride a wave which is not there anymore. Looking at things like meltdown readiness, corporate affairs, aging population, whale research, mental state of the population, ...

Not sure what role he is having in mind though. Maybe he means a sample role of what not to do.

2 ( +3 / -1 )

Answer: The Japanese government.

It's true that the Japanese government has the equivalent of 14 trillion USD of debt. But they also own the equivalent of that in Assets on another balance sheet.

It's like borrowing $200,000 to buy a house and telling everybody that you're $200,000 in debt. But if you count the fact that you own a house worth $200,000 then it all evens out.

It's as if they have two wallets and they take your tax money, put it in wallet A, then they transfer that into wallet B and point to wallet A and claim "look we have no money, we need to tax you again."

(face-palm)

@ neversubmit

(Debt - Assets) = Net Debt (this is not hidden from the public and its reported every year)

Japan debt is 229.1 percent of Japanese GDP on a gross basis, and 127.8 percent on a net basis. Yes it is like getting a house for 200,000 and then telling everyone you are 200,000 in debt that is Gross debt. Getting a house for 200,000 and that house is now worth 150,000 your net debt would be 50,000.... so if you sold the house you would still be 50,000 short, The GOJ debt is 127.8% of GDP on a net basis..... almost half of the debt they have assets for so they can't just sell Govt assests and get out of debt they would still have about 50% of the debt left and the GOJ doesn't net any money so selling assets is only a short term fix b/c they can't pay the rest off...... the problem for the Japanese Gov't is that they're addicted to debt.

2 ( +2 / -0 )

The long-term future for most developed countries is stagnation,

Given that Japan is also addicted to working, addiction to debt is nullified. And that debt really just a gender stance on handling economics. And as Japan has a better tendancy towardsthe traditional family, one-income families,in comparison to Europe, adding in a love for shopping too, with the right leader, that will get rid of wasted govt monies, Japan's only risk is if it becomes addicted to the European image. Id say certain people have been trying to push that too, but image alone is pointless, and that leg has already been pulled anyways. Also Japan doesnt have a problem of deceiving itself as better educated, whilst also keeping pace with any educational gains that are around.

-2 ( +0 / -2 )

Actually, it is worse:

http://www.economicshelp.org/blog/774/economics/list-of-national-debt-by-country/

3 ( +3 / -0 )

The day of reckoning isreached when the total amount of government debt comes within earshot of the sum of all the private sector financial assets. Foreign investors have already shied away from the JGB market, as 95% of JGBs are held domestically. When all of the domestic private sector financial assets become Japanese government debts, it is the absolute dead end.

If the dead end is close enough to be visible, even Japanese investors will try avoiding accumulating more JGBs.

As the Japanese economy has been stagnating, household income has not risen for more than a decade. With rapid ageing in Japan, households in aggregate will start spending down financial assets rather than further accumulating them.

The total household financial assets peaked at 1,566 trillion yen in March 2007, and have already declined to 1,476 trillion yen by March 2011. (Net financial assets, after deducting mortgages and other liabilities, are about 1,110 trillion yen.) If this pace of decline continues, household financial assets will be about 1,340 trillion by 2016.

The outstanding amount of Japanese government bonds (JGB) in March 2011 was 943 trillion yen, up from 674 trillion yen in 2007. If the pace of increase continues in the future, the JGB outstanding will be 1,350 trillion yen, for the first time exceeding the household assets, in 2016.

So, according to this simple calculation, Japan would be insolvent as a nation in 2016.

Of course, this is too simplistic a calculation. Other factors can absorb debt: The public sector of Japan owns financial assets, including JGBs, so that the net liabilities, rather than gross JGBs should be considered in such a calculation.

The four years from 2008 to 2011 have been exceptional in running large fiscal deficits in response to the global financial crisis, so that the debt may not increase so rapidly in the future.

On the other hand, there are factors that may move Japan to the saturation point even faster. In addition to JGBs, there are other public sector liabilities, such as the bonds issued by local governments as well as future liabilities in the national pension, healthcare and long-term care systems. Reconstruction after the earthquake/tsunami disaster of March 2011 will cost the government. The decreasing working-age population may continue to depress the economic growth. The increasing retired population will raise the social security benefit payments.

If borrowing from abroad for already high government liabilities is unlikely (without paying a prohibitively high interest rate), the amount of private sector financial assets will represent the end game.

0 ( +3 / -3 )

Japan does not have Greece, Italy and Spain on its back.

Yes it does, in a sense. Japan has its provincial regions. These are mostly economically unsustainable. Without a steady revenue infusion from the central gov't, dozens of local authorities nationwide would be forced to declare bankruptcy.

-3 ( +3 / -6 )

It is true that there will be long term panic of investors regarding the Japanese Govt Bond. In the future, it will become unstable because of high volume. Investors will doubt about Government ability to repay. When the J banks were run out of fund, J government will not print money. It will make Yen worthless. It will not ask IMF to bail out too.

Many posters do not realize that rest of the Asian nations will not allow to Japan economy to collapse. They have already got the financial crisis in 1997. Allowing big Japan to fall will become like a domino effect in rest of Asian financial markets and economy Asia is not Europe. China foreign reserve without gold is 3.2 trillions. Japan has more than 1 trillion including gold. South Korea foreign reserve without gold is more than 300 billions. Taiwan foreign reserve without gold is 398 billions. HK has 294 billions. Singapore has 246 billions. Excluding their assets which can be transformed to cash.

Asian nations also has average GDP more than 5%. They are not debt ridden nations which are selling bonds to survive. When the disaster strike, there will be lightening movement. In the long term RMB will become dollar of Asia. Therefore they will be less prone to external shock too.

http://www.reuters.com/article/2012/05/03/us-northasia-economy-idUSBRE84207H20120503

-1 ( +1 / -2 )

the thing as with most comparisons here is the europe is not an actual country. It is a loose collective of different nations with no real leadership. There EU has no absolute jurisdiction over its members and the battle to get that has been going on since it started. I'm not getting into good or bad on this one but that is the big difference most people seem to miss when comparing to europe. Europe is not 'one'

0 ( +0 / -0 )

How do you interpret this photo? = Whose your daddy

1 ( +1 / -0 )

I hope and pray Japan never falls into the same economic mess as Greece, Spain,Portugal, etc..NMRK

-1 ( +0 / -1 )

Most Japanese are hard workers, now say southern Italy, Spain, Greece, etc..???

-1 ( +1 / -2 )

I don't live in Japan anymore, but my opinion is that Noda is a good politician. For me Noda looks like a real politician as Koizumi also looked. The other PMs ellected were very very bad.

Japan is in a ditch and it will be very difficult to go out of that.

I think the Japanese need to understand better what happens in the country, comparing itself with other nations (this is the most important think, to compare itself with others).

Pardon for that, but my opion is that japanese need to go out of the cave, because ordinary japanese are only hard workers that can't see the real truth outside (like in 'Allegory of the Cave' by 'Plato').

0 ( +1 / -1 )

Elbuda MexicanoJul. 01, 2012 - 09:23PM JST

I hope and pray Japan never falls into the same economic mess as Greece, Spain,Portugal, etc..NMRK

Japan is well past that stage and as others have said the Japanese Spain is Shikoku, the japanese Greece is Hokkaido and the japanese Portugal is Kyushu.

At least these countries have a young vibrant and potentially future gainfully employed younger generation to replace the oldies who messed the party up. Have you been to Shikoku lately? In one town I visited, the only people under 60 were the nurses looking after the oldies.

Japan is in a very frightening situation - a decreasing tax paying base in a quickly aging population, ran by a highly indebted government whose debt might be a family affair, but is still debt - but the really scary part is the way that Japan's future is totally ignored as an issue on the political agenda.

0 ( +5 / -5 )

The PM Noda was somewhat dishonest on this issue..: Japan does not face 'some risks' as Europe given Japan's sovereign credit remains basically sound..but the issue was how he & his cabinet colleagues Azumi kept pointing at Europe what they should do earlier without bringing forward what Japan's own issues are to be addressed...and now he only started to manipulate the 'risks' in his own camp when he wants to raise sales taxes.. Same tricks were used to exaggerate the 'risks' of N. Korea for scaring the Japanese public to justify spendings of billions in endless military exercises & deployment of weaponry ( proven useless ). Meantime, Tohoku relieves & restart of nuclear power stations revealed how poor the DPJ's capacity in managing the post- disaster issues.

1 ( +2 / -1 )

Elbuda MexicanoJul. 01, 2012 - 09:24PM JST

Most Japanese are hard workers, now say southern Italy, Spain, Greece, etc..???

You've obviously never worked with many japanese or you're confusing hours spent at work with production during that work.

I've worked in Italy, Spain, France and Turkey, and the japanese are by far the most unproductive workers that I've worked with - admittedly not in a factory, but in offices - and the French are the hardest workers. Japanese workers, on the whole, are completely useless at multi-tasking and thinking on their feet,

The living dead salaryman, keeping his head down and staring blankly at a computer screen for 14 hours a day is as much a cancer for Japan's future as the tax wasting government or the aging population.

Where is fast food not fast food? In Japan.

-1 ( +3 / -4 )

Oh, they'll just stick it to the tax payers.

0 ( +0 / -0 )

This is slightly off topic. But has any one here played any of the civilization games? The reason Im asking is cause since playing the CIV games since I was about 15, national and world economics make a lot more sense to me now. It's interesting to note how educational those games are. Any way, Jeff Lee is pretty much right. The only place left for most countries is stagnation then decline. Japan is already on the way down in terms of population. Less population means less money and less production.

I would say the only countries that will be coming out of this unscathed or better off are the ones with large amounts of natural resources and enough population to to maintain production. Also under developed countries will be better of as the cost of living is much lower. Im looking at countries like China, India, Brasil. They will be the next big players. (Well China already is lol)

0 ( +0 / -0 )

It's like borrowing $200,000 to buy a house and telling everybody that you're $200,000 in debt. But if you count the fact that you own a house worth $200,000 then it all evens out.

Until it turns out that the house is worth only $50,000, which is what has happened in many other countries at many different times.

0 ( +0 / -0 )

Jesse isnt that already the case? And how much exactly do they play? Japan is still playing. Japan also has demographics whereby the population floods to the cities-not that there is no people or young people, just lifestyle choices. having said that most city people have a relative in the country, should they feel the need to move, do something about that.And Dog as you say yourself your view is from the office no matter what country you're in. At least the Japanese have the decency to act like pushing paper is just that, pushing paper. Their workers as in those that build up a sweat, are not fazed by sweating. At the same time, Japan has managed to maintain wage levels at a reasonable, unlike certain countries. Japan focuses on Japan mostly, which is why people who suggest looking to the future seem prepostrous. Have you ever heard any country say 'our future looks bright'??No, isnt that because reading too much into a future agenda is really only manipulating the society? And Fernando, you're the type of Japanese who has read so much foreign literature, that you dont realize the language is contextually different. Why don't you write a book or two with such vivid descriptions and play on words? Is it because the language which when written contains symbolism that it speaks differently? It doesnt get that deep in creative words, but add in the kanji and the depth is there. Japan doesnt need any more or any less of a foreign view than any other country's peoples. I do agree that Europe hasnt got the one governing control body and so comparison is vexed, but Japan hasnt a risk situation--yet. What it is risking though is being fear-mongered, so I agree that the rest of Asia wont let Japan slide too much either

-1 ( +0 / -1 )

Since the bonds are denominated in Japanese Yen, the Japanese government does have the option of printing them away. In essence, the Japanese government could eliminate all its debt in one day just be printing the equivalent in cash.

Granted, inflation would skyrocket but the only losers would be people with lots of money in the bank.

Most of the bonds issued by the Japanese government are held indirectly by the Japanese government themselves.

The Treasury Issues the bond (a liability)

Japan Post and the BOJ buy the bond for cash; (the cash is held by the treasury as an asset and the bond is held by Japan Post or the BOJ as an asset)

It's kind of like having two bank accounts and always writing checks to transfer cash from one to the other.

All the big institutions in this game, the Treasury, the BOJ and Japan Post are government institutions. In short, it's a complex money game and the powers that be in Japan play it very well. And they always complain that there's a lack of money so taxes need to go up.

Granted there are some private players in the JGB market but they are tiny and most of them are the major established banks in Japan, who are no doubt part of this game anyways.

Foreign players are insignificant in the Japanese bond market because the yields are horribly low.

-1 ( +0 / -1 )

Gun to the head hey?

0 ( +0 / -0 )

For Noda to talk about being a "role model" when what the DPJ has done is to win the prior lower house election promising under their manifesto to focus primarily on admistrative cost and overall spending cuts (which has actually increased) while refraining from increasing the consumption tax during their term, then suddently without much explanation provided to their original voters deciding to pursue a tie-up with the opposing party to push the tax hike bill through despite their own party members criticizing the party's betrayal of the voters thereby essentially leading to the breakup of the party. If what is reporterted in the article was pretty much all he said at the press conference at this time after everything that is taking place in the political landscape, a rather shameless statement in the eyes of their original voters if not the entire people of Japan, thereby suggesting that a re-election to be held asap should be in order. In my view it is the extreme representation of the powers of the Japan bureaucrat (ie MOF) at work and the unfortunate fact that the democracy that the country has in place may be meaningless unless the people gain the rights to directly elect their own nation's leader.

2 ( +2 / -0 )

This is beyond stupid. Noda and all the rest of useless politicians can raise taxes all they want, but it won't bring any positive results and will cripple the weak economy even further. What they need to do is to create a viable and attractive business environment to lure foreign investors and corporations. They need qualified foreign immigrants and this is the only way you do this. Here is how it needs to be done: Lower all business taxes, profit taxes, and so on

Remove regulations Get rid of property tax in areas outside Tokyo Fukushima and nearby areas are to have zero tax policy and to have gambling allowed. Immigration laws to be rewritten to attract young workers. Japan is to join TPP and other similar agreements. Subsidized farming is to stop
-2 ( +0 / -2 )

I have no idea what the solution is but more tax ain't it. Europe has much higher tax when compared to Japan.

We need to get more realistic, for one pension age should continuesly move forward as people live longer and longer. Taxation should be more flexible, low income people should be taxed much less, after all these are the main consumers and the ones working for people with high income.

Then increase tax for people with high income, most of the time they have high income due to many people of low income working below them. Many people of high income have said that high tax is not an issue for them.

It's strange when the solution seems so simple that governments have so much trouble figuring this out.

0 ( +0 / -0 )

Cut the public sector, free up workers for the private sector, problem of debt and declining population solved in one stroke. There are plenty of openings for teeth sucking hanko wielding chairbots, honest.

0 ( +0 / -0 )

@bluemonday Cameron and Osborne tried that piece of genius in the UK. Have you seen the UK's unemployment rate and expanding welfare bill?

-1 ( +0 / -1 )

Excellent photo, by the way. Shooting himself.

0 ( +0 / -0 )

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