Japan’s GDP Shrinks Dramatically After a Tax Rise and a Typhoon
By News
Published 4 years ago on
February 18, 2020
Share
[aggregation-styles]
The Economist Subscription
Economists still puzzle over Abenomics, the experimental mix of policies introduced by Japan’s prime minister, Abe Shinzo, seven years ago, in an effort to ward off the country’s deflation and stagnation. But two lessons are clear.
The Economist Subscription
Economists still puzzle over Abenomics, the experimental mix of policies introduced by Japan’s prime minister, Abe Shinzo, seven years ago, in an effort to ward off the country’s deflation and stagnation. But two lessons are clear.
After the government raised the tax from 8% to 10% on October 1st, the economy shrank at an annual pace of 6.3% in the fourth quarter of 2019, according to figures released on February 17th.
Japan’s bond market is remarkably docile. And its households are painfully sensitive to increases in the consumption tax, a broad value-added tax imposed on many of their purchases. After the government raised the tax from 8% to 10% on October 1st, the economy shrank at an annual pace of 6.3% in the fourth quarter of 2019, according to figures released on February 17th (see chart).
The tax increase was an unforced error. The government faces no immediate need for additional revenue. Despite gross debt nearing 240% of GDP, its borrowing remains absurdly cheap. The yield on a ten-year government bond is stuck at about zero, where the country’s central bank, the Bank of Japan (BoJ), has pegged it since 2016. That peg obliges the BoJ to buy as much government debt as necessary to keep long-term interest rates low.
Such an accommodative stance is needed chiefly because private spending has been weak—too weak, at least, to lift inflation, currently at 0.8%, to its target of 2%. Thus the consumption-tax rise was doubly strange. It made it even harder for firms to sell their goods to Japan’s inhibited consumers, so that Japan’s government could sell fewer bonds to an automatic buyer. It was like shifting weight to the waterlogged side of a ship.
Read More →
The tax increase was an unforced error. The government faces no immediate need for additional revenue. Despite gross debt nearing 240% of GDP, its borrowing remains absurdly cheap. The yield on a ten-year government bond is stuck at about zero, where the country’s central bank, the Bank of Japan (BoJ), has pegged it since 2016. That peg obliges the BoJ to buy as much government debt as necessary to keep long-term interest rates low.
Such an accommodative stance is needed chiefly because private spending has been weak—too weak, at least, to lift inflation, currently at 0.8%, to its target of 2%. Thus the consumption-tax rise was doubly strange. It made it even harder for firms to sell their goods to Japan’s inhibited consumers, so that Japan’s government could sell fewer bonds to an automatic buyer. It was like shifting weight to the waterlogged side of a ship.
Read More →
17 Feb 2020
RELATED TOPICS:
Sparks Move Home Game Against Caitlin Clark From Long Beach to Downtown LA
Sports /
2 hours ago
California Schools Can’t Keep Pace with Utility Bills. Lawmakers Must Fix New Solar Rules.
Opinion /
2 hours ago
A Scorching, Rocky Planet Twice Earth’s Size Has a Thick Atmosphere, Scientists Say
Science /
3 hours ago
Police Clear Pro-Palestinian Protest Camp and Arrest 33 at DC Campus as Mayor’s Hearing Is Canceled
National /
4 hours ago
CA Supreme Court to Hear High-Profile Case About Taxes
Politics /
5 hours ago
RFK Jr. Says a Worm Ate Part of His Brain, but He’s Better Now
Presidential candidate Robert F. Kennedy Jr. has faced several health challenges, including an unusual incident where he said that a worm en...
Politics /
25 mins ago
Categories
Latest
Videos
Politics /
25 mins ago
RFK Jr. Says a Worm Ate Part of His Brain, but He’s Better Now
Local /
2 hours ago
Do You Love the Holiday Classic ‘Home Alone’? This Is Fresno’s Chance to Remake It.
Sports /
2 hours ago
Sparks Move Home Game Against Caitlin Clark From Long Beach to Downtown LA
Opinion /
2 hours ago
California Schools Can’t Keep Pace with Utility Bills. Lawmakers Must Fix New Solar Rules.
Science /
3 hours ago