Opinion: Taking a close look at Japan’s troubled economy

by Mustapha Abiola

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When he was elected, using the three arrow symbolism to attract voter appeal, I reckoned the Japanese people began to believe in a method to his magic. Perhaps then, they were foolhardy, or just lazy in thinking that they’d receive “free food” from Abe. No matter, in December of 2012, he became Prime Minister, and shot off his arrows.

It’s no news that Japan’s in trouble. And Abenomics (which is primarily about reversing Japan’s deflation, and restarting growth using a kneejerk approach of qualitative, and quantitative easing – simplified brilliantly by doubling its monetary base in under two years) has caused a marginal spike in CPI (up 3.7%) and household spending (down 8%) not to mention the push in inflation, taxes and utility fees. The holes, then, are starting to appear in the emperor’s new clothes.

When he was elected, using the three arrow symbolism to attract voter appeal, I reckoned the Japanese people began to believe in a method to his magic. Perhaps then, they were foolhardy, or just lazy in thinking that they’d receive “free food” from Abe. No matter, in December of 2012, he became Prime Minister, and shot off his arrows.

These metaphorical “arrows” represent monetary stimulus, fiscal stimulus, and structural reform. With the first, he managed to arm-twist the BoJ into doubling the money supply in a matter of months, which was then redistributed to polictically powerful banks. And despite the claim that Japan has under 2% inflation, prices of imported goods, like energy, have dramatically increased since the monetary stimulus arrow was shot. Wages remained depressed, along with higher expenses to pay, and the only ones who profited from this were the banks, who could speculate the market with money that had been credited to their accounts via the central bank. It’s one step away from an elaborate counterfeiting scheme.

This particular stimulus doubled the money supply, whilst the fiscal stimulus increased spending on government contracts. Handing out contracts on motorways that lead to nowhere, replacing the Olympic stadium with a brand new one, and so on. Government investments are a lot like consumption, it creates a full-on loss. The people end up paying for it all in the form of higher taxes, and debt climbs along with it. He raised car and income taxes. Sales taxes went up by 60% where he announced plans to raise them by 100%. He’s considering the increase on taxes on the married, and the poor. If by some miracle, fiscal spending created a profit, it wouldn’t go to the tax payer. Heads you lose, tails you lose.

The third arrow, “structural reform” – I do not know what it means. It sounds like a 21st century version of Soviet era Glasnost; there hasn’t been any sort of deregulation, loosening of government controls against private firms, or anything that actually can be referred to structurally reforming. So let’s just leave this one alone until someone can explain it to me.

The problem I really have is the advocates. Those that are either unable, or unwilling to look at Abenomics for what it is – a farce. The economically ignorant praise his arrows. They delude themselves into thinking that because the Nikkei sees upward decimal point trends, Japan’s economy isn’t suffering. It is. And Shinzo’s worst nightmare has come full throttle. It has left Japan’s ordinary people with a crushing debt and tax burden.

One might ask what he’s trying to do about it all. Last I saw, he was trying to convince companies on all scales to dig into their private stockpiles, and raise wages so as to keep up with inflation. Not sure if his position has changed, but until last week he seemed to labour under the strange singular assumption that his tax payers – if given pay rises – would spend more, in turn boosting the economy.

They therefore probably won’t add their monetary stimulus until next year given that they “expect” a slowdown in prices, because “people are bound to spend more”. It’s almost laughable.

He’s had nearly two years of free reign to obliterate the economy with his monetary and fiscal hammer, and so far so good. Although, the market itself might have pulled it head out of the sand, the economic data from Japan (re: household spending) saw the highest inflation rate since the 80’s in everything but wages [which dropped for the second straight year]. Disposable income thus has imploded in on itself.

Look, the Nikkei is basically the USDJPY. Unless Nomura stabalises the USDJPY, pushing it up significantly, it would slide down into the 90’s and 80’s in the weeks to follow. I expect that we’d all hold hands with the Nikkei, and Abe’s failures in a grotesque effigy of kumbaya on my birthday.

At any rate, Japan faces a Chinese wall of debt and can only address it by the constant reprinting and debasing of their currency. Paying off their debt with a worthless YEN where possible, and defaulting on promises otherwise made. Their public debt stands at about ~230% (give or take a percent) of their GDP, the highest in all of the industrial world. Their YTD perf is on par with Russia and their MICEX. Even Zimbabwe probably scoffs at them.

I’m willing to bet that the BOJ will come again with monetary easing sometime in the year, and when they do, you can bet that taxes will rise along with it; we’ll laugh all over again at our currency pair trades whilst putting down payments on the holiday home we’re looking to lease for the winter.

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Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.

 

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