Japan Cuts Growth Forecast

Here in Japan, people are dour as the Bank of Japan cut its growth outlook for fiscal 2012 to +2.0 pct from its October estimate of +2.2 pct. It cited heightened concern about the eurozone crisis crimping the global economy, and the strong yen.

Shortly after that, the government said it’s likely to fail in its goal of balancing the budget by 2020 even if it proceeds with the wildly unpopular plan of doubling the national sales tax. Societe Generale’s chief Japan economist quipped, “To balance the budget, the [sales tax] rate needs to rise further. We’ve passed the point where we can soft-land the fiscal situation. The question is how hard the landing is going to be.”

Pretty hard by the looks of it. Finance Minister Jun Azumi told lawmakers at this year’s first Diet session that letting public finances deteriorate further would present a “significant risk to stable economic growth” and that efforts to contain debt should be made “as soon as possible.” Very convincing — except that it’s what they say every year.

Is this finally the year that Japanese government bonds (JGBs) give up the ghost and Japan solves the world’s worries over Europe by cratering so spectacularly that Greece and the Merkozy show become an annoying gnat to swat? Possibly, though predicting the appearance of the JGB reaper has been the best provider of egg on financial faces for more than a decade now.

Consider, though: Japan is only walking dead rather than buried dead because its borrowing costs are about 1 pct. If yields on JGBs rise to 3 pct — as many analysts predict they’d do if sold on global markets instead of to clueless Japanese workers willing to earn nothing on their savings — the nation is instantly bust. While the clueless are no more clued in now than they were in decades past, they are simply older and more interested in selling JGBs than buying. Thus, the domestic money tree is about shaken out as Japan’s debt aims at 230 pct of GDP next year. No, not in 2020, but next year.

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4 Comments

  1. Scott
    Posted January 25, 2012 at 9:04 am | Permalink

    As a resident here in Japan, I’d be happy with a higher consumption tax instead of 5% now. 10% works Down Under with 23 million, why not here with 127 million?

    Without hard commodities and the like for China to take advantage of what other revenue resource is there for Japan?

    Scott
    Australian in Japan

    • Posted January 25, 2012 at 9:49 am | Permalink

      I agree on 10% being reasonable, but government is saying it isn’t enough and now they’re tossing around higher figures. Nearly 60 pct of the population opposes any tax increase, so even the 10% is going to be a battle. Meanwhile, the sovereign imbalances worsen by the month.

  2. Kent Lacey
    Posted January 25, 2012 at 7:11 pm | Permalink

    Jason,

    Difficult times call for difficult measures. All major economic nations should meet and agree to all go bankrupt at the same time. All debts are cancelled, everyone starts over, and we should be good for another thirty years before the politicians bankrupt us again.

    What ever happened to the concept of spending only what you have in your pocket, and spending it only after it is in your pocket, not spending what you anticipate you will have sometime in the future, maybe?

    Government no longer works. We need a constitutional amendment forbiding debt in our national gov’t. And we need strict term limits to get rid of the idiots who got us here. Or we need tar and feathers. Government IS the problem. Therefore, government cannot cure the propblem. It is a simple concept, but the answer is revolution.

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