PM Abe claims he is “neutral” on whether to raise the sales tax in 2015. But he really is not. In our view, the VAT hike in 2015 is a foregone conclusion. Why? A number of reasons, but most importantly because of the election schedule. In 2016, both upper and lower house of the parliament will be up for re-election. In order to avoid giving opposition parties a chance to stand on the no-tax-hike platform, it would be in the best interest of the current ruling parties to pre-empt it by finishing the tax hike in 2015. In our view, the economic consequence of the two consecutive years of VAT hike will be dire. We expect the growth rate in 2015 to be mere 0.4% and 2016 could see a negative growth. Policy makers are likely to respond, but both fiscal policy and monetary policy are severely constrained and we expect their actions to be reactive, rather than proactive. Read more..
The latest result from Economy Watchers' Survey indicates that the Japanese economy stopped improving in August. The survey is conducted in the last 5 days of each month and it is one of the early indicator for how Japanese economy performed in the month. Read more..
The Japanese economy shrunk by 1.8% quarter on quarter, according to the revised estimate published on September 8. The estimate is a slight downward revision from the initial estimate published on August 13 that calculated the shrinkage to be 1.7% qoq. The shrinkage in the private capital expenditure was re-estimated to be larger than initially estimated. In the light of weak economic data received so far, we suspect that policy makers are starting to be worried. However, they are unlikely to consider adopting stimulus measures until early 2015. Why? It is because as soon as they start discussing on the stimulus measures, the first question they would face is why they would not cancel the consumption tax rate hike to 10% in 2015. In the press conference on September 5, BoJ governor Kuroda supported the tax hike in 2015 and said the negative impact from the tax hike can be dealt with later. In our view, it sounds dangerous as it is tremendously hard to change the direction of the economy once it starts to go south. However, that seems to be the risk Japanese policy makers are willing to take to make the tax rate hike final. Read more..
Prime Minister Shinzo Abe reshuffled his cabinet ministers and LDP leadership positions on September 3, 2014. There will be no change in the direction of Abenomics. Finance Minister Aso remains in his place and he will continue to exert an expansionary bias on Japan's fiscal policy. The most important change in this reshuffle is the removal of Mr Ishiba from the position of Secretary General of LDP. Mr Ishiba almost beat Mr Abe in the LDP leadership contest back in 2012 and he continues to be an immediate threat to Mr Abe. With Mr Ishiba reduced to occupy a minor ministerial position, Local Economy Revitalization Minister, Mr Abe has succeeded in solidifying his political stability. Read more..
The wage report for July delivered a set of good news for the Japanese economy. Total wage grew by 2.6% year on year (YoY) in July, the highest growth rate since January 1997. The YoY growth rate in the basic wage was much more sober at 0.7% YoY in July, but the bonus wage component grew as much as 7.1% YoY, boosting the total wage growth. The 0.7% growth in the basic wage is also not insignificant. As stale as it may seem from an international perspective, it is the highest growth in Japan since March 2000. The July wage report provides a timely relief for policy makers who have been starved of good news recently. Policy makers can now claim that wage is gradually catching up with the consumer price inflation and therefore, their logic goes, the Japanese private consumers can take another beating from the sales tax hike in 2015. Read more..