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Risks to 'Abenomics' growing, whether Abe raises tax or not

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By Leika Kihara

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Raising a sweeping tax when you're trying to stimulate the economy simply won't work. I predicted this would happen.

“If they don’t go ahead with it, that will shake confidence in Japan’s finances to some degree,”

When have Japan's finances ever been "shaken", even after it became the world's most heavily fiscally indebted country? These dummies have been giving this warning for years and years, and they always turn out wrong.

5 ( +8 / -3 )

Our dear leaders don't give a darn about you or I, they only care about foreign investors buying their paper.

13 ( +17 / -4 )

Nothing will happen until it is too late. Japanese voters are simply too weak in politics understanding and in incapacity to challenge the leader's authority. Same in many firms.

13 ( +15 / -2 )

Whether or not the tax hike goes through, now the call is that Abenomics will fail regardless. So once it does fall apart and people lose confidence in him and his plan (and he's replaced), does that mean the elusive 'third arrow' of reform will never materialize? That the lasting result of Abenomics was a boost for the big market players through the currency manipulation, a boost to big business through increased gov't spending, but of little help to regular people except more tax, no pay raise, and continued webs of waste and bureaucracy?

It makes me wonder, was it designed to fail from the beginning? Was the 'third arrow' never intended to ever show up from the get go?

Or why were the arrows implemented in such order (as in, why wasn't arrow 3 actually introduced as arrow 1 and explained and implemented first or at least on par with the others)? Maybe it was to see how 1 and 2 go, and see if the 'painful' arrow 3 could finally get traction only if the economy was exploding prosperously?

Or did the same businesses who benefited from arrows 1 and 2 use their clout to block arrow 3? (like, by never offering practical pay raises that would at least offset the tax hike. This would also include the government and all the government workers, as well as getting the minimum wage out of the 700yen range)

Or (more likely) was it just a shi#y plan all together?

17 ( +18 / -1 )

I haven't heard much of the other alternative, and that is cutting government spending. Other governments return to balancing the budget but reducing spending. The government continues to avoid mentioning the state of the finances to the general public so they think everything is fine.

8 ( +10 / -2 )

A recovery in the world’s third-biggest economy is faltering, despite Abe’s massive monetary easing and government spending over the past 21 months, and Japan may already be sliding into recession just as Abe must decide whether to raise the tax once again.

Even though Abenomics follows a different economic philosophy/principle than Ronald Reagan did, the term "voodoo economics" comes to mind. It was all smoke and mirrors from the very start, mixed with great PR. Glad I got my money out a few years back.

6 ( +12 / -6 )

Abenomics has never worked. It has been a failure from the start. The reason the Japanese economy is where it is now is the salaryman mind and risk aversion. It is the fear of taking chances and doing something new.

To stimualate the economy it is necessary to stimulate thinking, ideas, imagination, not just the money supply.

11 ( +14 / -3 )

What would help is exemptions on sales tax for food, medicine, etc. Also people who are capable should be able to work until at least 70 if they want (on a full-time or part-time basis). The Japanese govt. should spend money investing in technologies of the future instead of wasteful construction projects again and again.

7 ( +9 / -2 )

"Delaying the tax hike carries its own risks, given the need to control the debt as the rapidly aging population makes budget-balancing ever more difficult. The government promises to balance the budget – net of new bond sales and debt servicing – by 2021, which already looks ambitious."

To be fair, it’s not Abe’s admin that dosed out the tax hike installment plan although Abenomic is more hypes than real deal to begin with.

Abe now is caught between a rock and a hard place. In near term, if he doesn’t go ahead to raise consumption tax as planned, the investors’ confidence will definitely take a nose dive, which will sure be reflected on Japan’s stock indexes. If he has the courage to do it, his political career will be on the line. So it’s a catch-22.

I know for sure that I would be only few in this forum to support the next tax hike in Japan. The rationale of mine goes like this: it’s a bitter, and somewhat necessary medicine as we know it, but in long run, this dose may secure a solid finical foot for Japan to regain strength.

-8 ( +3 / -11 )

Oh, what a phenomenal surprise. I'm shocked to see that it's becoming impossible to even pretend the asinine policies of this deluded little mountebank are anything more than pork-barrelling and money-printing.

Whoever could have predicted such a thing? Oh, apart from most analysts and the majority of posters on this August forum.

A pound to a penny says he'll still bring in the tax hike, though. To do otherwise might mean the Dear Leader loses face. Tax hike in, sudden relapse into bowel problems, reluctant resignation and heroic walk into the sunset, then the whole thing can collapse taking the rest of us drones with it. So long as the Five Families are taken care of, who cares about the working people of Japan?

10 ( +12 / -2 )

By raising taxes to 10% will not do anything at all to stimulate the economy. Is Abe out of his mind or what!!

If the politicians really wish to create a better Japan for everyone and get the economy back on track, why don't they concentrate on much better ways to stimulate the economy...

Here are a few examples that I think might work...

Stop wasting tax payers money on useless meetings that tend to go no where and or make no progress at all.

Raise the tobacco prices in Japan to at least 1000 yen per pack and use that money to improve society as a whole.

Raise the taxes on pachinko parlors all over Japan and use that money to educate the youth of today in much better things than just concentrating on passing a whole lot of useless tests.

Drop the pay of all politicians in Japan and get rid of their yearly bonuses for at least the next 10 to 15 years.

Put a tax on every religious group all across Japan and use that money to make drastic improvements to the everyday lives if everyone in Japan.

I'm sure if they implement these metthods, it will do a whole lot more than just raising the consumption tax to 10%.

Oh, one more thing that they could also to is to stop giving tax payers money away to nations that are in a war. Japan needs the money more than the nations that continually are waging wars agains each other.

Word!!!!

15 ( +20 / -5 )

... yet they felt paying for a bloated sports event like the Olympics with money they aint got, ignoring Tsunami victims, and building what they dont need without realistic planning was a good idea...

12 ( +14 / -2 )

@ alladin - excellent points, I agree with them all. Unfortunately they are too logical ...

6 ( +10 / -4 )

Yeah, well, what do you expect. The hugely brainstormed economic plan of Abenomics was just a recycled idealism from the 70's when the japanese manufacturing was a leader in world markets. The markets that Abenomics relies on for success do not exist anymore for Japan because they have been taken by many other countries. Japan's economic recovery requires innovative and radical strategies, not the same old BS recycled from 40 years ago.

2 ( +4 / -2 )

Stop wasting tax payers money on useless meetings that tend to go no where and or make no progress at all.

They get paid the same salary whether they come to the meetings or not, so this point is moot. I would rather have them paid for meetings that go nowhere than get paid for sitting in their office and reading the newspaper.

Raise the tobacco prices in Japan to at least 1000 yen per pack and use that money to improve society as a whole.

This will cause two things to happen, first, many people will quit smoking, so no revenue will come from them. Others will continue to smoke, and pay the tax, but the money they pay for the tax will be money they won't have to spend on things like food or other goods, so businesses which sell these things will suffer, and will earn less income to pay tax on, and have less money to pay their staff, which will result in less revenue for the government.

Raise the taxes on pachinko parlors all over Japan and use that money to educate the youth of today in much better things than just concentrating on passing a whole lot of useless tests.

Technically speaking, gambling is illegal, and you don't win any money at pachinko parlours, so taxing them is impossible. To tax pachinko, you would have to make it legal, and to make it legal would probably never happen. As it is, even pachinko parlours are not doing well, and were they taxed, what little profit they do get would be eliminated, and many, if not most, would close, and there would be little or no revenue to gain. Or, worse, if they were legal and taxed, but earned no profit, they could write off many of their losses, and qualify for tax credits, which means that instead of paying tax, they would actually collect benefits.

Drop the pay of all politicians in Japan and get rid of their yearly bonuses for at least the next 10 to 15 years.

Politicians don't earn any real money from their salary, this has never been the case. Politicians the world over make money from graft and kickbacks, or in Japan, through amakudari jobs. Lowering their salaries might even motivate them to find more ways to squeeze special interests or businesses out of more money.

Put a tax on every religious group all across Japan and use that money to make drastic improvements to the everyday lives if everyone in Japan.

How do you define the words "religious group?" The moment you legalise the oppression of religion through special taxes or regulation, you open the door to the possibility of taxing or regulating anything and anyone the government believes doesn't agree to be a secular standard. This is so absurdly foolish as to be considered stupid. Something like this was done in Germany before the second world war, wasn't it?

The only way to get the economy under control is to reduce the size of the government to a supportable level, which is perhaps half of what it is now. The hundreds of thousands of bureaucrats, public workers, and the like, must be pushed out of the public sector, where they are a drain on the economy, and put into the private sector, where they provide growth and revenue. Rather than the government taking up nearly 40% of the GDP, and spending 26% of all revenue collected to service the debts which are incurred to pay themselves, the government should be reduced to 15% of GDP. With the population expected to fall by one-third over the next 40 years, we should expect the government to reduce it's size and spending by at least on half.

1 ( +5 / -4 )

I don't know why the world's economic analysts proceed with the belief that Abe has any power over the economy (outside of market sentiment) whatsover? It was always the case that the 3rd Arrow needed to succeed for Abenomics to have a prayer, but any sort of reform in Japan is immediately stifled by the bureaucrats and invested interests.

Japan will smother itself to death with its status-quo pillow before it will ever changes. So perhaps it wasn't "designed" to fail as Supey11 suggests, but I would hazard that Abe and his cronies knew it would never succeed but would at least perhaps buy them enough time to continue the right-wing push for constitutional revision and militarization.

2 ( +2 / -0 )

I was not the only one to say it, but I did say that raising the consumption would create consumer blowback in decreased spending. It has happened with a vengeance. But what did anyone expect? Price rises when when real wages are down are not going to encourage increased consumer spending by ordinary people. Raising the tax to 10% is going to be a real disaster. And it be going join the other disasters that Abe is creating. The small good thing might be that it will bring down Abe and perhaps the LDP as well.

0 ( +1 / -1 )

I really don't mind paying my fair share of taxes. But, I'm living just about poverty level. I made due without much but can survive fine. But, my last two Japanese National Health care (国民健康保険 Kokumin-Kenkō-Hoken) monthly bills went up from about ¥14,000 (for over 14 years) to ¥29,000 as of recent. My income hasn't gone up. Nor do I visit the hospital (twice) in fifteen years. Why did this increase so much?

3 ( +3 / -0 )

Since Abe first came into power, almost everyone writing on this board pointed out that raising taxes and creating price inflation (with no wage inflation) would only mean that people in Japan would tighten their belts as they would have less money to spend. The Japanese have a defensive trigger. Families with less money will save even harder because they know they cannot rely on state pensions alone to support retirement and they know that they need to pay a fortune to get their child through a university. These policies could never have let to real growth in the domestic economy. Abe decided to focus on a weaker yen to drive up the stock market and help exporters, but Japan has no raw materials and the costs to domestic industry have been terrible. Meanwhile Abe gifts tax money to right-wing construction firms and bureaucrats, in a policy euphemistically terms "stimulus". The debt is now over 240% of GDP as a result and the country has experienced no economic growth at all since Abe was re-elected. The only "growth" came from "stimulus" and can be seen in the sky-rocketing national debt. This is just typical LDP politics.

Abe was a dreadful, clueless PM in 2007 and he has got no better. Because of his landslide victory he has been able to hand-pick everyone from the board of NHK to the Governor of the BOJ, essentially paying people fortunes of our tax money to repeat his mantra. But the mantra is wrong. There has never been a real economic recovery and the government's only policies are currency manipulation and pork-barrel projects. This was all woefully predictable from the start. Abe does not understand his own people because he is the elitist grandchild of PM Kishi (a man arrested for war crimes) and has no idea what goes on in the lives of normal Japanese people.

Politics in Japan is a big game of seat swapping and turn-taking and it all needs to change. But Japan and the Japanese don't do change. If Abe resigns, someone like Aso will have another go, or another representative of Japan's ruling elite will continue doing what is best for the extremely wealthy minority. Abe and the LDP will continue to avoid the real problems the country faces, which is the ageing population, the lack of children and the shrinking tax base being handed an increasing tax burden. We all know these are the real issues, but LDP governments who are elected by elderly rural constituents have no interest in addressing these issues. They'll just raise taxes because they think that gives them more money to gift to their supporters in construction and bureaucracy and they can't allow any policies on board that might upset the rural electorate.

6 ( +7 / -1 )

you want to stimulate the economy? fire everyone in the diet and their staff and start all over with average everyday citizens they will do a much better job

0 ( +1 / -1 )

There's an old guy living in the neighbourhood of where I work, and I bump into him once or twice a week when he's hitting the post-office or on his way to the nearby supermarket, and he and I became acquaintances some years back when he took up the courage to stop me on the street and strike up a conversation in English. He's a great guy, and tells me all sorts of stories of when he was working and spent some time living/working overseas, etc., but one thing we have argued on, almost bitterly a couple of times, is Abe and more specifically Abenomics. When Abe went on his first Abe World Tour touting his name-brand product said acquaintance spoke proudly of Abe and talked about how it was due time Japan had a PM that could make decisions and get things back on track economically. I agree about Japan needing a strong-minded leader, but said that Abenomics would never work because while Abe himself might want to change things, the system won't allow any of the hard changes (ie. third arrow) and only accept those that immediately benefit those who can actually change things, and in the end it would fail and with the additional debt and taxes things would end up far worse in the near future. The old guy got angry and said Abe was going to increase general wages to help spur the economy and that I should not complain, and that a tax raise was necessary and would help, etc. etc. We could simply not agree and I regret saying at one point that I hoped he would not see that I was right, because now when we meet I see in his eyes that he knows it. We don't talk about anymore when we meet, and he has never said the word "Abenomics" again since a few months ago, though he complains about his pension having been reduced and smaller sized products at the supermarket.

No one mentions Abenomics in Japan or around the world anymore, save to say either I told you so or as a lesson of what not to do. When was the last time you heard Abe brag about it? Nah, I think Abe's classic tummy ache is going to pop up pretty soon. He's delayed even thinking about the tax hike thusfar, despite his promises, and I think he's going to continue to and even try for an extension on a decision because he is completely screwed and he knows it.

0 ( +6 / -6 )

Alladin I like your idea of taxing smokes & pachinko, I disagree with sangetsu that they would result in lower taxes collected, heck with people giving up smokes & pachinko just imagine how much more ca$h they would have to other things!

And while I like good beer & shochu & scotch I think booze tax could do with an increase as well!

I would gladly pay 10-15% consumption tax IF:

no taxes on food/meds similar necessities!

Cut govt spending by 20-30% its clear they are easily wasting/stealing this amount as a minimum!

Cut down the number of bureaucrats & simply all the damned taxed, its a complete mess!

BAN amakudari(jail terms PLEASE!)

This is the biggie CUT INCOME taxes for PEOPLE, NOT companies!

And speaking of companies routinely 70% NEVER pay taxes, GO GET THEM!!!

There are more but above is a damned good start!

How about abe!

4 ( +7 / -3 )

Guys, all of this debate is pointless. Taxes will always go up. Spending will never be cut.

What you need to do is just accept it, and find a way to position yourself to profit or at least gain from the increase in tax. That way you can have your savings / retirement / investments offset the increase and be ahead of the curb.

Taking away entitlements (whether they be political / govt workers bonuses or pay) (or social welfare programs) will not happen. Humans don't like stuff taken away from them once they have it. Any politician who even attempts to do so, will be outcast and targeted. They won't be re-elected and they lose their means to make a living. So don't expect change from the political side or from the people who are receiving benefits. So the only choice is to raise taxes.

We are already headed down the road to the inevitable. Its best to just take advantage of the situation, gain as much as you can , and built a buffer to protect your standard of living and the lives of your loved ones.

Look at how history has played out, be a realist not an idealist

2 ( +3 / -1 )

This is the biggie CUT INCOME taxes for PEOPLE, NOT companies!

Shifting tax from people to companies does not mean that people pay less taxes, and companies pay more. In the end, everyone still ends up paying the same. Imagine the economy is a pool, with the poor on the shallow side, and the rich on the deep side. If you take a bucket of water from the deep side, the water level does not go down only on the deep side, the level of the entire pool goes down. When you tax a particular class of taxpayers, the cost is immediately spread throughout the economy. Those who scream to "tax the rich" have no idea that those taxes are eventually paid by the poorer classes. But people are stupid.

And speaking of companies routinely 70% NEVER pay taxes, GO GET THEM!!!

In Japan it is true that 70% of companies don't pay tax. But this is because THEY ARE NOT EARNING ANY PROFITS TO TAX! These companies are what is called "loss-producing." These companies have seen sales decline year after year as the population decreases, and as foreign competitors provide good products for lower prices. If you GO GET THEM! they will simply go bankrupt, or otherwise shut their doors.

One of the reasons that things are so bad is because of how profoundly ignorant people are of economics, and how the economy works. They vote for people who make expensive promises, without a thought as to how they will be paid for.

2 ( +3 / -1 )

*Raise the tobacco prices in Japan to at least 1000 yen per pack and use that money to improve society as a whole.

This will cause two things to happen, first, many people will quit smoking, so no revenue will come from them. Others will continue to smoke, and pay the tax, but the money they pay for the tax will be money they won't have to spend on things like food or other goods* yes but if people quit then the number of people who get tabacco related illness will drop dramatically. saving the health system 100s of billions of yen yearly.

1 ( +1 / -0 )

Abenomics is working! It's just not working in any way that will be good for most people.

Big, Fat TOLD YOU SO!

4 ( +4 / -0 )

@alladin, GW, wtfjapan and whoever else spoke of raising tobacco tax:

Yes, taxing cigarettes would potentially increase tax revenue for the Finance Ministry, and even save money for the Health Ministry since it would reduce smoking rates, but understand that fewer smokers isn't necessarily what is sought.

Understand that the parent company of JT (Japan Tobacco) is the Government of Japan. Yes, JT is one third owned (down from 50% last year) by the Finance Ministry, the same place any added tax revenue would land if the price of cigs went up. So they must manage price-point economics here, which means figuring at what point does increased tax reduce the number of smokers to affect the revenue from selling the smokes.

Simply put, if cigs cost 200yen a pack (50% less), it probably wouldn't sell twice as many packs and/or double the number of smokers (so less revenue would be gotten from both tax and sales); and charging 800yen per pack (double price) would probably decrease the number of smokers and packs sold, maybe by half (or more), but it would also take jobs away in production, delivery, marketing and sales, as well as provide fewer patients (i.e. customers) to doctors/hospitals, and put even more strain on the pension system because people would live longer.

One may say that the government should get out of the tobacco game, but before anyone agrees, realize that the MoF can't sell their stake in JT. Its actually required by law that the gov't here own at least 33% of the tobacco monopoly. And like everything else, there's a fat chance of that law ever changing....

0 ( +0 / -0 )

Economics, taxes and productivity are all related domestically as well as internationally. However, economists and financial analysts, especially the banks, including the international monetary fund are dominated by politically motivated individuals and groups and are not necessarily giving meaningful advice.

Domestically, the problem is not necessarily the availability of money or taxation. The problem is where and how the available funds are being spent. As with the rest of the socialized societies with lack of balance between productivity and social welfare and benefits, Japan as with the USA spends much too much on projects giving away money that does not get any meaningful results or returns.

Call it politics or just a population that has gotten used to getting handouts, taking more than what is put in. While spending on foreign aid may appear to be huge, it is far less than what is being wasted domestically for political expedience.

What needs to be discussed is HOW to REDUCE taxes that gets wasted.

Next is to discuss HOW to improve productivity in a society with a growing population of senior citizens who are more dependent on government and others for handout.

How could we guarantee self sufficiency for the aging population without dependency on the younger generations?

3 ( +3 / -0 )

i think japan really need some fresh minds to enter politics. Looks like Abenomics was created in the first place to close the door of opportunities to every hard-working citizen so as to maintain the current status quo whereby the elites (especially those controlling politics) will always be in control, while those who are controlled, no matter how hard working they may have been or how big their dreams might be, they will always find themselves stay in their position or gradually fallback as the economy staganates or recedes. looks more like a 'winner-take-it-all' philosophy rather than a 'shared economic prosperity' approach.

-2 ( +1 / -3 )

looks more like a 'winner-take-it-all' philosophy rather than a 'shared economic prosperity' approach.

Which country isn't?

-3 ( +0 / -3 )

We forget that our host country, Japan has a unique political system where the political parties actually run the government and the country and not necessarily the Prime Minister. Uniquely designed by the Allied powers after the war to prevent a powerful leader and at the same time to allow for the existing "brotherhood style" of politics to continue, watering down the unification of power. The unique Japanese feudal system allowed for such transition and plays an important role in Japanese socialistic society. That also allowed for the inefficiency of the government due to having to "satisfy" at least to an extent all parties involved.

The sad thing here is that all the parties involved means every powerful entity that are in the back of each politician, from companies like TEPCO, Mitsui, Mitsubishi, Hitachi, Sumitomo, and Toyota to name a few. On top of all that, Japan has a tradition of "protocol" and "ceremony" hidden behind the need to "save face", that affects every action taken. So therefore, Abenomics takes time and effort to coordinate and make effective to even be able to evaluate its usefulness and effectiveness.

Taxes affect not just the general public, so a lot more time and input is required before Mr. Abe can make the final move.

0 ( +1 / -1 )

In Japan it is true that 70% of companies don't pay tax. But this is because THEY ARE NOT EARNING ANY PROFITS TO TAX! These companies are what is called "loss-producing." These companies have seen sales decline year after year as the population decreases, and as foreign competitors provide good products for lower prices. If you GO GET THEM! they will simply go bankrupt, or otherwise shut their doors.

sangetsu,

Yes & NO........ a LOT of these companies have not been making money for decades(by design!), they BLOODY WELL should be long dead & gone so other PROFITABLE companies can pick up the slack, become stronger(PAY MORE taxes!) BUT no these zombie companies are allowed to carry on to the detriment of other companies & society in general.

When 70% are screwing the country guess what the country gets screwed! This should have been dealt with ages ago, but alas here we are with 70% of the companies sucking the hind you know what!

And its my opinion that if Japan doesn't cut its wasteful thieving spending its going to go down like nothing that we have ever seen. I agree the govt etc will & does fight this, its the only thing that has a shot at potentially saving this country.........but do the locals even want to be saved, do they care.....who knows

And smokes & booze I mean come on, these are all still very cheap, hell I can buy a bottle of Canadian Club in Japan for half the price it costs back in my home country, Canada, clearly there is LOTS of room to reap $$$$ from sin taxes! Which as I said I would gladly pay.

There are lots of ways Japan can shore up its financial position BUT it constantly chooses NOT TOO.............

Exit plans folks if you don't have any you need to make them

0 ( +1 / -1 )

Yes & NO........ a LOT of these companies have not been making money for decades(by design!), they BLOODY WELL should be long dead & gone so other PROFITABLE companies can pick up the slack, become stronger(PAY MORE taxes!) BUT no these zombie companies are allowed to carry on to the detriment of other companies & society in general.

Give me the names of 5 well-known Japanese companies who are earning a profit in Japan. Before you begin counting off the big car makers, remember they make and sell many of their cars overseas, and that their taxes and profits are earned and paid overseas. Toyota lost quite a few billion yen on sales in Japan last year, and is on track to lose as much this year. You can find this info easily by searching for their annual reports, which are public record.

Next, remember that every yen paid in company tax is recouped in one of two ways, either prices are raised to compensate for the tax, so you end up paying for it, and not the company. Or the company cuts costs, like payroll, new machinery, or r&d. Make sense?

Next, whenever taxes are raised by any amount, spending is raised by a greater amount. This is the Golden Rule of government economics. Abe has already spent more money on "stimulus" than was projected to be raised by the tax increase. This being the case, what was the point of raising the tax? Taxes are never increased to pay down our government's vast and accumulating debts, they are raised to enable even more government spending.

The problems we have aren't that taxes are too low, but that spending is too high. And any increase in tax, even on things like alcohol, casinos, or tobacco, is eventually passed on to the entire economy, and we are all the poorer for it.

0 ( +2 / -2 )

What I suspect is going on and will intensify will be de facto deflation. It comes under the categories of bargain hunting and cutting back.

Take fish. The best time to buy fish if you run a restaurant or are a gourmet is early in the morning. But the most economical time is in the evening. You can still use that good but not near-death fresh sashimi for fish strew. Result: deflation of the original fish price.

Or take cameras. Ms Ito is a photography student who would like a Leica rangefinder camera, but even the vintage one's are beyond her pocket book. She decides on a Fujifilm mirrorless camera that is as quiet as a rangefinder, yet acts like an SLR in showing the image, and on top of that show you exactly how your photo will look. But the camera and lenses she wish to buy are yet too expensive, and made more expensive by the consumption tax. So she buys a used mirrorless camera and used lenses. Result: De facto deflation of the original price. Also, the camera maker does not profit from the sale.

Another example, which I take from F. Scott Fitzgerald's "Babylon Revisited" (1931). Charley Wales and his daughter Honoria are having lunch at a restaurant. Charlie suggests she have two vegetables. Honoria says the family she is living with only has one vegetable with lunch. Charlie is a product of the extravagant 1920s but Honoria is a child of the Depression. If the economy-minded Honoria has only one vegetable the price of a lunch for two people is deflated by the price of one vegetable.

The foregoing examples are hypothetical. But in a situation where real prices are inflated by the consumption tax and real wages are deflated at workplace by greedy employers you are going to cultivate a nation of bargain hunters and cost cutters. This is intern will bring down real prices (and, thus, tax revenue) creating de facto deflation. Of course some things like gas won't deflate. But people may use public transport more, or give up driving altogether.

The problem with Abe's economic policy is that it is primitive and short-sighted. Abe wants to lower the international price of the yen and so prints more money. The exporters are happy. They make more profits in the short run. Importers are unhappy because the have to pay more for imported goods, which makes their customers unhappy because they get stuck with higher prices. And the joke is that, as Thomas Wolfe said, you can't go home again. Japan simply cannot return to the days with the yen was 200 to the dollar or 250 to the dollar. In the early 1990s to fine bicycle makers, Bridgestone and Miyata, pulled our of the US market because they could not make sufficient profits from the lower US dollar. At that time the yen stood at around 150 to the dollar. Companies like these won't be returning to the US with the yen at 109 to the dollar, unless they set up shop in the US.

The consumer revote against the current rise of the consumption tax was greater than expected. Imagine what the revolt will like if the consumption tax goes up to 10%. Think of the poor fishmonger left with too many unsold fish by the end of the day.

0 ( +0 / -0 )

It seems that some people are under the impression that any turmoil experienced in financial markets (say, as a result of the risk of a loss of faith in the government's intent to put it's finances on a sustainable path - yes a risk that some wish to imagine doesn't exist) is "someone else's problem", e.g. the "rich" or the "investors".

Not so.

Everyone is potentially smashed if the markets see turmoil.

Such people really ought to understand this.

Whether it's further tax hikes or big government spending cuts, Japan has no easy paths out of the hole it is in. A booming global economy that drags even Japan up with it is probably the only feasible resolution that wouldn't result in any pain, but good luck with that.

And taxing companies is not an answer. Taxing companies more would only damage Japan's economy further. A company can always move it's operations to a more attractive jurisdiction. What Japan needs is more companies seeing Japan as an attractive venue to do business, and thus hire more people, which would put upwards pressure on wages. The government is not running a soviet style operation here, they can not force wages to go up by decree, only through good policies that create the desired incentives. Abenomics has this part right, the problem is they have done nearly enough of this type of pro-growth policy and it's all been way too slow.

0 ( +0 / -0 )

foreign investors are hardly the prop buying Japanese governement paper. mostly it is BoJ and some local banks and invesyment companies. eventually the level of indebtedness will have adverse consequences. Inflation, far weaker yen, whatever. abenomics was never more than money printing and hot air. The belief that there was a ever going to be a third arrow was always misguided. so crank up the presses.
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@alladin

You have even better ideas!

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Alladin your "ideas" will raise relatively tiny amounts of money and are targetted at interests or habits you don't like. Answer is to try and spend less, spend more effectively on rebalancing the economy, gradually reduce borrowing, promote innovation, allow some limited immigrations etc etc. Taxing tobacco and pachinko and paying politicians less is just not going to do it.

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