Japan’s Economy Stagnant, Tax Hike Delayed

Japan’s Economy Stagnant, Tax Hike Delayed

Japan’s Economy Stagnant, Tax Hike Delayed

The Cabinet of Japanese Prime Minister Shinzo Abe has approved the delay of a planned hike of the nation’s consumption by 2.5 years.

The Cabinet also decided to delay other measures related to the tax hike, including a planned exemption of some food items from the tax hike from 8 to 10%, from April 2017 as planned, to a delayed October 2019.

The office said that a set of revised bills related to the tax hike delay will be submitted in September to parliament for approval.

PM Abe has delayed increasing the nation’s consumption tax to 10% 2X since it was 1st hiked to 8% in April 2014, in a move that plunged the world’s 3rd-largest economy into recession.

The delay has raised questions about the government’s ability to rein in Japan’s massive public debt that stands at 240% of the nation’s economic output and means to fund the country’s rapidly-increasing social welfare costs as the nation continues to age and the population shrink concurrently.

On 10 August, the Finance Ministry here said that the central government’s debt as of the end of June had climbed in the past3 months, underscoring the government’s increasing difficulties in financing the nation’s mounting demographic problem.

It said that the central government’s debt had climbed by JPY 4.10-T (US$40.87-B) from 3 months ago, to stand at JPY 1,053.47-T (US$10.50-T) as of the end of June.

The mounting debt, at more than 240% of the national GDP (gross domestic product) and the largest in the industrialized world, is partly attributable to costs related to the nation’s rapidly aging population and financing the social security costs involved, the ministry’s data showed.

The Prime Minister has reissued numerous installments of his “Abenomics” aggressive blend of economic policy mixes, yet, as economists have pointed out, the stimulus measures therein have failed to spur growth and longer-term structural reform plans remain unavailing.

Mr. Abe’s government earlier this month unrolled a hefty stimulus plan to the tune of JPY 28.1-T as part of the latest installment of his flagging “Abenomics” economic policy mix, but economic analysts maintain that the latest measures lack the unequivocal allocations and long-term vision necessary to fundamentally “kickstart” the nation’s stagnant economy.

Mr. Abe has on many occasions stated that a further delay in raising the consumption tax is necessary due to a slowdown in overseas economies and as demand for Japanese goods wanes, underscored by concerns about Britain’s recent decision to leave the EU, yet robust domestic corporate profits are not being redirected into expenditure, meaning domestic and consumer demand are both remaining soft.

Slow wage growth, despite solid earnings, are also impacting consumer spending and overall sentiment, economists have highlighted.

On 15 August, the Cabinet Office said that in Q-2, the economy had stalled, expanding just an annualized 0.2% in real terms, with the figure coming in below median economists’ expectations.

The government again pointed to a slowdown in overseas economies, the strength of the yen and slumping private consumption as all contributing to the ongoing stagnation.

Sluggish exports have been weighing on the economy, the government has said, with exports falling 1.5% in the Quarter, highlighting withdrawing overseas demand and the negative impact of the yen’s protracted appreciation against its major counterparts.

With consumer spending also weighing on the economy, with an uptick of just 0.2% in the Quarter, the overall failure of “Abenomics” continues to be in the spotlight, with the weaker-than-expected growth data causing economists to question his policies’ effects on market participation, consumer spending, as well as the central bank’s lofty 2% inflation target, the target date of which, along with the tax hike, has also been delayed.

Stay tuned…

The following two tabs change content below.

Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

Latest posts by Paul Ebeling (see all)

You must be logged in to post comments :