Nicola Bernini comments

Dear itsonlyrocknroll, well I really like Abe san and when I have said he has a “secret agenda” I did not want to blame him for this, actually I think it is absolutely normal for politicians …

Full disclosure of plans is never a wise idea because opponents can develop a strategy against it.

I agree with you about his official agenda and he is surely going to address key problems in Japan development but I think he wants to do this with a stronger position in the Lower House hence he developed a smart (sly) plan to get it.

I see nothing bad in this strategy and “not telling the whole truth” is perfectly normal for standard people, even more so for politicians ;)

Hi itsonlyrocknroll, so you are blaming Abe because he is not expressing clearly his reform plan right ? Actually I suppose his hidden agenda is something like the following one. He wants to slightly improve protectionism for Japanese Economy by means of Yen devaluation. Indeed if he would increase internal demand by meand of fiscal policy, it will result in being flooded by imported goods (i.e. Chinese ones) hence growing huge trade deficits … and that’s not good. Yen devaluation will grow Japanese goods competitiveness with respect to the other ones thus later increasing internal demand with fiscal policy will not result in the above mentioned trade deficit. Obviously the necessary condition to trigger the latter phase is the yen devaluation to substantially increase the import prices and maybe it is slowly happening (I’ve read the Yoshinoya beef bowl price is getting more expensive because of US / Australian imported beef price increase caused by the yen devaluation) Low oil price will help …

itsonlyrocknroll

The first round Abenomics failure is due to Abe tax hike happened in April … as simple as it is. Kuroda is simply doing smoke and mirrors to confuse media and people … Abe is exploiting this situation to improve his position in the Lower House by means of snap election now he is still popular

The point is that not only there is no need for Japan to reduce its debt because it has no problem refinancing it but deleveraging during stagnation / recession is totally nonsense as the Eurozone is teaching … Imho the central issue is that or Abe is a very smart politician or he is a very stupid one: increasing the VAT in April could not give any different outcome despite any effort spent the BoJ … Japan just like Eurozone is already in a liquidity trap hence no matter how cheap is the credit, the internal demand will not restard without a fiscal stimulus … and Abe did exactly the opposite … why in your opinion ? If he is stupid, he simply has no idea how things work … But I don’t absoultely think he is stupid, on the contrary I think he is a sly guy and he planned since the very beginning to make the situation more difficult while his opponents are weak to call for snap elections and improve his position in the Lower House …

Even if the central bank can’t do anything important in a liquidity trap, Kuroda has always been at the center of the scene: media spent a lot of time speaking about the trillions of yen printed by the central bank and very little about Abe fiscal policy … Imho because of this, normal people is blaming Kuroda, not Abe, for the poor results in the deflation fight until now …

@5petals, defo no problem.

I have not said his real goal (of course in my opinion) is to end deflation but “to keep Japan among the leading world economies” even at the cost of going on with low inflation (actually a little better than deflation) Low inflation is useful to Japanese Export because it keeps prices low hence combining this with yen devaluation, it should be easier for Japan to grow an important trade surplus … Free Capital movements and Open Markets is simply the context we are living in:) WTO is the institution responsible to keep markets as open as possible: for example before Abe’s election in 2012 Japan was considering to switch back to a temporary protectionism to overcome the difficulties related to Big 2011 Tsunami and Fukushima but Abe did not want to so WTO praised Japan for this decision http://articles.economictimes.indiatimes.com/2013-02-21/news/37221756_1_wto-members-protectionism-japanese-trade-policy

Actually yen artificial devaluation is a sort of protectionistic policy but it is a more acceptable one compared to other ones …

Obviously exposing themselves to global competition by means of open markets in the present context with such an overproduction capacity is though and long lasting low inflation / deflation is a common consequence: Eurozone is now falling in Japanese-style deflation, US is struggling to keep inflation close to 2% (and they also have a big debt problem) and also China inflation moved just in the last year from 3% to 1.6% …

To sum up, what I claim is that the only way to end deflation without growing a huge trade deficit, hence enworsening the debt substainability, is to pursue protectionistic policies thus conflicting with WTO (so probably with consequences) None of the big economies has yet decided to follow this kind of strategy so everyone, sooner or later, will see its inflation lowering …

The first step could be a currency devaluation “war” and Abe has already moved along that direction …

@sangetsu03, @5petals I take advantage of this interesting discussion to explain better my point on Abe and Abenomics … Actually I don’t think Abe is really pursuing the end of deflation for a very simple reason: presently, it can crash the whole country … but Abe has been elected with the mandate to end deflation so he can’t openly tell the truth …

Imho the his real goal is to keep Japan among the leading world economies and he’s planning to do this with the only strategy that, in the present context of open markets and free capital movements, is really working: mercantilism.

Actually I think he wants Japan to grow large trade surplus by means of

yen devalutaion (improves exports and reduces imports) low internal inflation (if you have internal inflation, your goods will become more expensive and hence less easy to export) support for big multinational companies (they have the infrastructure to reach global markets)

As you can see, point 2 is contrasting with his open mandate to end deflation but he is doing it in the interest of Japan as a whole nation …

@CH3CHO

I supposed all of the LDP opponents were proposing to postpone tax hike and obviously to unlimited time but the point is … are they credible ? I think it’s rather easy to develop a plan with tax reduction and everyone is happy … is this actually anything possible ? I don’t think the average Japanese elector can be fooled so easily …

Japan can still be one of the leading economies in the world despite its big debt because Japanese ppl is financing it by means of its own banking system (Japanese savers + BoJ) but obviously this kind of firepower is not unlimited hence other parts of the Gov Spendings (i.e. Pension System) should be financed by other means, like taxes …

Taxing consumptions (i.e. increasing VAT) is a way to make Japan a more mercantilistic country: internal consumption is discouraged to keep prices low (low demand → low prices) hence export is eased …

Actually this will not really end deflation (taxing consumption is essentially a way to keep inflation low) but low internal inflation, as well as yen devaluation, will ease exports and hopefully allow Japan to grow larger surplus

Obviously from this kind of context, big multinational companies will get more benefits while small-mid companies will struggle to survive but, again as I stated in a previous comment, it’s the common dynamic in a globalized world and you can’t surely blame Abe for globalization …

Sangetsu03, I almost completely agree with your position. As far as I know, the goal of the tax hike happened in April was to finance the pension system by means of taxes instead of deficit … I think that Abe, whom I consider a smart politician, knew very well that the effect of such a tax hike would have been negative on GDP and imho he developed a plan this … Actually I think he is exploting the fact that he got electoral mandate on his initial plan (including the tax hike of April 2014) and now he is willing to go on vote again with an appealing program based on postponing the next tax hike (also this backed by electoral vote 2 years ago) and with weak opponents in order to improve his position in the Lower House …

Yubaru, technically postponing a tax hike is quite an important change to the original blueprint … However you are claiming that yen devaluation is killing the small-mid size manufacturing and that the big exporters are producing out of Japan right ? So I ask, who is taking advantage of yen devaluation ? I don’t think Abe is crazy and he’s pursuing a nonsense goal … Maybe the big exporters are producing out of Japan (in cheap labor countries) but they are selling it from Japan so they benefit from yen devaluation and they are paying their taxes in Japan (not in other countries)

You claim it’s not like this ?

If this is correct, it means that big companies are growing while small and mid size ones are decreasing but this dynamic is something very common in a globalized world: I don't think you could blame Abe for globalization ...

LDP will lose about 30 to 50 seats.

Actually Abe is going to election but his own will and with a program that essentially consists of postponing taxes … how can you say that he is going to have problems with this ? Furthermore, his opponents look now quite weak and beside the recent scandals,

Abe imho has no full responsability for the poor Abenomics performance … Actually he proposed a plan to Japanese ppl and he got voted on this, then he followed it (as he was supposed to do) and so responsabilities are partially his own ones (because he developed the plan) and partially of the electors. Now he’s proposing an important change to the plan and hence he’s asking again ppl support … This sounds reasonable to me …

Finally probably he is exploiting this “not too unfavourable” moment to try improving his seats in the Lower House and his plan obviously involves a little percentage of risk but it does not seem bad to me

Abe is smart politician: first he creates a “problem” namely the tax hike that electors implicitly supported as a part of the plan they voted 2 years ago and he also creates the “solution” namely his plan to postpone the tax hike …

This way he could exploit this situation to improve his position in the Lower House ...