critique of the current status of ABENOMICS in Japan: - //The biggest reason why GDP contracted so much is the government’s decision to increase a national sales tax. Japan’s public debt is the largest in the world, making revenue raising a crucial task for the government. To help achieve this, Mr Abe implemented a 3 percentage point increase in the sales tax last April, a change that skewed the spending pattern of many households and businesses. After this week’s GDP figures, Mr Abe will have to judge whether further planned increases in the sales tax remain justified. It may be prudent for him to put more of the fiscal burden on the country’s cash-rich companies, lightening the load on families. - It would be wrong, however, to pin Japan’s economic problems on tax policy alone. Other major constraints on growth need to be tackled. One fundamental problem is the lack of business confidence in Japan, which means companies are hoarding cash rather than investing in new equipment. Mr Abe needs to persuade businesses to inject new cash into the economy. - It is particularly important that the government reverses the fall in real wages. Since Japan’s population is shrinking fast, falling from 127m today to a projected 90m by 2060, economists might expect wages to rise in a tight labour market. Yet the Japanese workforce remains dominated by highly protected regular employees who are unproductive and difficult to fire. As a result, Japanese company bosses have been highly reluctant to award pay rises and additional security to non-regular workers. Wages for many employees are not catching up with inflation, thereby depressing demand - Mr Abe needs to throw as much of his political weight as he can behind policies that end the rigidities in the labour market. He also needs to give more momentum to his “third arrow” of structural reform. The Japanese prime minister has time on his hands, with no need to go to the polls until 2016 and an opposition that is in disarray. However, this week’s economic data have exposed just how big the task of turning round the Japanese economy has become.
Posted on: Sun, 17 Aug 2014 21:14:31 +0000