Japan's fiscal strategy takes flexible approach to spending curbs

Complete FAIL. Government debt levels, in Japan or any other country, are not determined by how much a government spends. They are determined by how much of that money is taken back through taxation on economic activity, and how much of that money is instead hoarded away as savings. The private savings ARE the public debt and vise versa. Makes no difference if you have a "big spending socialist" government or a "fiscally responsible, private sector loving" government, the debt goes up as money is drained out of the economy into savings (which are not taxed). But don't expect the wizards in charge of the Japanese government to understand any of that. They still comically think their money comes from "taxpayers" and "bond investors". As for where the taxpayers and bond investors get THEIR money from, apparently it falls from the sky.

This is the latest long awaited fiscal consolidation plan?

Abe's team is going to take a "flexible approach" regarding how much money tax payers money it will spend?

Their plans are based on a delusion of 2% real GDP growth?

I don't see what Abe's team has done that can speed the economy up so much more than its performance over the past 20 years.

Thank goodness (in the short term, at least) that the BOJ is monetizing all of this government spending.

So when Abe talks about "spending curbs" he really means spending more? The LDP have no intention of balancing the budget, or even trying.

Japan is seriously heading for a debt crisis. Yearly budget deficit of 6% of GDP, and issuing bonds/debts to finance the budget where interest payments take up 44% of budget if new bonds issuances are excluded is courting with disaster. BOJ monetizing the debts will one day trigger a lost of confidence. Gross government debts at 240% of GDP is no joking matter. Painful but only sensible long-term solution is cut government spending, hike taxes and empower private sector, families and individuals.

Good old Abe. He can just 'retire' again when the crisis hits and sit back, phat and rich off his efforts. He doesn't have to care one wit about the future, and clearly he does not.

Since Abe took office in late 2012 he has vowed to kick-start a listless economy with bold structural reforms, but his first two growth strategy proposals have largely disappointed markets.

Now there's an understatement if I've ever read one. And, of course, it is the last sentence in the article. This "strategy" is nothing more than a bunch of overly optimistic projections about growth, attempting to justify Japan basically doing nothing about its massive debt. No one should really be the least bit surprised, that has been Abe's and Kuroda's MO since the start in 2012.

But don't expect the wizards in charge of the Japanese government to understand any of that.

For once we agree.

mr_jgb,

Whether it manifests as a debt crisis or a currency crisis, I dare not guess, but in any case things don't look good and the government's behaviour is troubling.

However, interest payments are actually 10.1 trillion yen.So that would be around 10% of the 100 trillion yen budget and close to 20% of the 51 trillion yen of tax revenues. Small consolation though, especially considering that there is only one direction for rate to go, long term. (http://www.mof.go.jp/english/budget/budget/fy2015/02.pdf)

It's interesting to compare Japan and Greece. In Greece, people just stop paying taxes when they feel aggrieved with what's going on there. In Japan the consumption tax hike has successfully increased tax revenues, but further hikes beyond 10% have (for the time being at least) been declared a no-go for political reasons.

So it seems that the Japanese government is just as incapable as Greece of boosting tax revenues much further. It also demonstrates no intention to cut spending, and has constantly failed to produce the types of regulatory changes that could unleash economic growth, as was the promise of the elusive 3rd arrow.

And talk about understatements...

“This is admirable, but when you look at our public finances, you would think a little more effort should be put into cutting spending.”

How about just "a little effort", even?

Unlike in 1990 when the Japanese bubble burst, the fundamentals then were stronger; younger population, much lower debt levels, stronger Japanese firms relatively, etc.

Now Abenomics & BOJ super QE for the past 3 years have created both a Nikkei & JGB "surreal" bubble. Once this bubble trend reverses, both JGB & Nikkei will collapse and the debt crisis will emerge. The higher Nikkei goes up, the reversal will be fiercer later. The aging & declining demographics if not reverse will steadily weaken the national finances & economy. Indeed it is almost an unsurmountable challenge.

Yes, I have studied the MOF website & figures; if you take out the new bond issuances......interest payments amount to 44% of revenue. If you include the bond issuances, the interest payments are about 10% of total budget. Japan is relying on new debts to pay old debts.

Abenomics have some merits, but carried to extreme for 1st and 2nd arrows without the real 3rd arrow will be self-defeating in a bigger way later as an unsustainable financial bubble is created without the corresponding real businesses and innovations.

The Asahi has results of a poll of 100 businesses: http://www.asahi.com/articles/photo/AS20150620002582.html

The results show that businesses think the Abe government is letting the team down primarily in the areas of 1) fiscal consolidation 2) social security reform and 3) regulatory reform.

What they think the government has right is corporate tax cuts, easy monetary policy (the BOJ's domain...), supporting women's participation and the TPP.

If Abe wants to get the economy moving, getting serious about fiscal consolidation, social security reform (one and the same, really) and regulatory reform are clear methods that would boost business confidence and reduce uncertainty, to complement the areas where Abe is going in the right direction.

He doesn't have to get Japan fiscally ship-shape over night. But at least getting Japan on the right trajectory instead of the wrong one could be a big boost to confidence, I'd wager. Abe doesn't want to take me up on this bet though.

Keynesianism gone mad.

Without a spending cap, it's more politically difficult to pick and choose where to cut. If this is an Abe arrow, it's gonna backfire.

We all saw this coming. Abe is a joke. His economic reforms are all a joke. His foreign policy is a joke.

I've heard that if, one day, while everybody is looking the other way, they manage to shove TPP through, large corporations will be able to sue whole countries.

Does this go the other way? Does it mean that whole countries can then sue large companies. Dow is hawking pesticides that cause cancer and Monsanto's pesticides are killing of massive populations of bees. Can we sue them for this sh*t?

Can peaceable muslims sue the U.S.A. for the mayhem and murder they caused in the middle east?

If it's possible to do some of these things, it might be very interesting.

But somehow, I get the feeling it would be like trying to sue Kremlin when Stalin was around.

Sink me - surely things do not tally! Even old Keynes would have said, "With THIS, we'll be all DEAD in the short run!"

Ha ha! I see here we got the inevitable references to "Keysianism" and "Keynes", and Greece. Don't see anything about Zimbabwe or the Weimar Republic yet. Keep the comedy gold coming though!!!

BOJ monetizing the debts will one day trigger a lost of confidence

There is no such thing as "monetizing the debt". Japanese government bonds are bought with existing money, they can not be acquired any other way. When the Bank of Japan buys bonds through QE, they are simply returning the money to the investor. Effect is the same as if the bond was never sold in the first place, and there is no increase in the money supply. And the Chicken Little line about "one day the sky will fall" got old about 15 years ago.

Painful but only sensible long-term solution is cut government spending, hike taxes and empower private sector, families and individuals.

"Empowering" the private sector by taking their money away from them. Sure. An act of economic vandalism and terrorism. Another turkey votes for Christmas.

However, interest payments are actually 10.1 trillion yen.

And all interest payments made on bonds held by the Bank of Japan are repaid in full to...THE GOVERNMENT OF JAPAN. Yes, that sure looks like an unsustainable situation, don't it

There is no such thing as "monetizing the debt".

Sure there is. This is exactly what happened in the past, when the Bank of Japan bought up all the debt issued by the government. Things were great for a while... and then they weren't.

Japanese government bonds are bought with existing money, they can not be acquired any other way. When the Bank of Japan buys bonds through QE, they are simply returning the money to the investor.

Wrong. The money that the "investor" (straight-through-processing agent is what they are these days) paid went to the government. The BOJ is creating new money to buy those bonds off the "investor". This is how the BOJ is boosting the monetary base, ostensibly in pursuit of its inflation target (although how this is supposed to boost inflation is questionable).

So net-net, the government gets the money, the BOJ gets the bonds, and the "investors" just straight-through-processed this exchange between the government and the BOJ.

In the past the BOJ and government did this exchange directly, which culminated in a disaster. Thus the BOJ law was enacted to prevent it such exchanges from ever happening again.

So today the BOJ and government do this exchange through the intermediary brokers of the bond market, but otherwise there is little difference, at all, except today we have nutcases who failed to learn the lessons of history assuring us that everything is OK and normal.

And all interest payments made on bonds held by the Bank of Japan are repaid in full to...THE GOVERNMENT OF JAPAN.

Wrong. The government pays the Bank of Japan the interest. But with the Bank of Japan monetizing the debt, making the interest payments is indeed not a concern. It's other problems that we need be wary of.

If you keep printing money, issue more debts and deficits keep getting larger and larger sooner or later you are going make your Yen becomes banana Yen like in 1942-1947. Print more and more to riches, then Zimbabwe should be the richest. Once the confidence is broken, its the point of no return for many years.