Bloomberg: Abenomics has chance to reshape Japan

[CityFarmer]

To share an article on Abenomics, that worth a read...

Chasing the third arrow of Abenomics

It is no wonder that Japan greets Abenomics with caution.

At a retail level, the Japanese people have held deflationary expectations for years and, at a professional level, fund managers and corporations have seen unstable governments come and go. While there is directional consensus on the government’s objectives, there is doubt about its capacity to execute, to stay united in leadership, to take on the pressure groups and to stay the course beyond the initial monetary thrust.

The message seems to be: “I agree with what you are trying to do — in fact, I will vote for you — but I will not give you the benefit of the doubt until I see real progress on the structural front.”

As a result, neither fund managers nor manufacturers have embarked on material adjustments to their asset allocations or hedge ratios. There have been modest deviations from benchmark but those benchmarks themselves have been largely unchanged.

So, in the battle of convictions, we have the Japanese people on one side and the government on the other side, assisted largely by foreign investors.

Having already embarked on unprecedented monetary easing, Japan must follow through with structural reforms. The consequences of inaction, otherwise, are too great.

Notwithstanding the possibility of infighting within the ruling party, there is a critical mass of people in the executive branch, in the corporate sector and in academia who believe that their time has come — that they will prevail in pushing through supply-side measures. This resolve will have been emboldened by last month’s Upper House elections, which the Liberal Democratic Party (LDP) decisively won.

What sort of measures could be adopted? Here is a laundry list of what might constitute progress “under the third arrow”:

One, labour reforms: Greater flexibility in making workforce reductions would help reverse deflation. When companies can’t let staff go, the only way to reduce costs is to depress compensation across the board.

Two, women’s participation: Raising the participation rate of female workers to the OECD (Organisation for Economic Co-operation and Development) average will boost growth and output.

Three, agricultural reforms, particularly those in line with the Trans-Pacific Partnership. Four, healthcare reforms in line with global standards.

Five, power/energy competitiveness — especially reactivating nuclear plants that were halted following the 2011 disaster and then replaced with natural gas and coal imports.

Six, “Silicon Valley-style” new enterprise. It was highlighted at a recent World Economic Forum event in Tokyo that the venture industry in Japan is worth US$1 billion (S$1.28 billion), versus US$20 billion in the United States.

Seven, incentivising corporate capital expenditure and research and development via tax cuts or credits

Eight, outward investment into Asia in the form of co-investment with the private sector.

Nine, reducing or ending support for so-called “zombie” companies

Over the foreseeable future, movement in any of the items on this laundry-list — forward or backwards — will likely drive financial variables in Japan.

The key to Prime Minister Shinzo Abe’s “Third Arrow” was gaining a stable majority in the Upper House. His party now effectively controls all of the major committees in that chamber as well as their chairmanships. This, coupled with the LDP-led coalition majority in the Lower House, gives them an unchallenged hold over policymaking.

Japan is now poised to fire the third arrow.

ABOUT THE AUTHOR:

Lutfey Siddiqi is Managing Director and Asia-Pacific Co-Head of Foreign Exchange at UBS Investment Bank and Adjunct Professor at the National University of Singapore. He was named a Young Global Leader by the World Economic Forum in 2012.

http://www.todayonline.com/world/asia/ch...-abenomics

[CityFarmer]

more on Abenomics...

Japan’s debt-funding costs to hit S$330b next year

TOKYO - Japan expects to spend a record 25.3 trillion yen (S$330 billion) to service its debt during the next fiscal year, a document obtained by Reuters showed, underscoring the huge burden created by the government’s borrowings.

The amount to be allocated for debt servicing for the year that will begin on April 1 is nearly as large as the gross domestic product of Singapore, which the World Bank put at US$275 billion (S$330 billion) at the end of 2012.

Japan’s Ministry of Finance (MOF), charged with drafting the state budget and issuing government bonds, will request the amount in debt-servicing costs under the budget, the document showed on Tuesday. That will be up 13.7 per cent from the amount set aside for the current fiscal year, reflecting the ministry’s plan to guard against any future rise in long-term interest rates.

The increased debt-servicing cost may heighten pressure on Prime Minister Shinzo Abe to proceed with a scheduled two-stage sales tax hike from next year, which is seen as a necessary first step in fixing Japan’s tattered finances.

But with Mr Abe having made ending 15 years of deflation and revitalisation of Japan’s economy among his top policy priorities, some of his advisers and members of his ruling Liberal Democratic Party want to delay or water down the tax hikes, worried they could hurt a budding economic recovery.

Years of fiscal stimulus to revive a stagnant economy and surging social welfare costs for a rapidly ageing population have led to Japan running a record 1,000 trillion yen in public debt, double the size of its economy and the biggest among major industrialised nations.

The MOF will compile spending requests for next fiscal year’s budget, including its own to fund debt-servicing costs and other expenses, and draft the state budget, which needs government and parliament approval to take effect.

http://www.todayonline.com/business/japa...-next-year

[CityFarmer]

BOJ maintains stimulus, says economy recovering

TOKYO - The Bank of Japan declared the world’s third-largest economy is recovering as it voted on Thursday to maintain its monetary stimulus, offering a more upbeat view than last month on growing signs the benefits of its expansionary policy are broadening.

A slew of positive data has underscored the view that robust household spending and the feel-good mood generated by Prime Minister Shinzo Abe’s pro-growth policies are gradually prompting companies to increase capital spending and hiring.

The BOJ’s upgraded view may heighten the case for Mr Abe to go ahead with a planned sales tax hike from next year, a move seen as necessary to start reining in Japan’s huge public debt.

As widely expected, the central bank voted unanimously to maintain its pledge of increasing base money, or cash and deposits at the central bank, at an annual pace of 60 trillion yen (S$765.8 billion) to 70 trillion yen.

“Japan’s economy is recovering moderately,” the BOJ said in a statement, revising up its assessment from August when it said the economy was “starting to recover moderately.”

The government is leaning toward raising the tax as planned from April and cushioning the impact with fiscal stimulus. The central bank may also come under pressure to act, although it is in no mood to ease pre-emptively to counter the expected drag on growth.

“The BOJ’s upgrade seems appropriate because revised GDP is likely to show that capital expenditure turned positive,” said Mr Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

“Our main scenario is that the BOJ will ease again around the time of the first tax hike next year. There are risks from the Middle East and overseas economies, but if the BOJ eases again it will be for domestic reasons.”

Japan emerged from recession in 2012 and data for much of this year has shown the benefits of Mr Abe’s reflationary policies and the BOJ’s aggressive stimulus.

Recent data have been particularly encouraging, with the jobless rate at the lowest in almost five years, summer bonuses increasing and core consumer prices rising at the fastest pace in nearly five years.

Finance ministry data on Monday also showed a healthy increase in corporate capital spending, pointing to a sharp upward revision to second-quarter GDP data due next week from a preliminary 2.6 per cent expansion.

That gives advocates of the tax hike ammunition to counter the views of opponents that Japan should delay or water down the tax increases to prevent the economy from faltering again.

Unless Mr Abe changes the plan, the sales tax will be raised to 8 per cent from 5 per cent in April and to 10 per cent in October 2015. He will decide early next month, taking into account the BOJ’s “tankan” business sentiment survey due on Oct 1.

Bank of Japan Governor Haruhiko Kuroda said on Thursday that the central bank stands ready to take further monetary easing steps if a planned sales tax hike or other risks derail the economy on its path to achieving the bank’s 2 per cent inflation target.

But for now the central bank sees no need to take additional stimulus steps, with Japan’s economy and prices moving in line with its forecasts, Mr Kuroda told a news conference.

“Japan’s economy is likely to continue recovering moderately as a positive cycle of output, income and expenditure kicks in,” he said. REUTERS

http://www.todayonline.com/business/boj-...recovering

[touzi]

With Tokyo winning the right to host the Olympics in 2020, could this further boost the optimism in Japan and give another shot to the Japanese economy? I certainly hope so. I miss the Japan of the 80s.

[Stockerman]

With the current trajectory for its demographics , I cannot see any optimism in its economy . Abenomics will not work eventually. In his latest book " one man view of the world" , LKY also mentioned about the hopelessness of Japan's future . Maybe Japan should be called the Land of Setting Sun instead ...

[corydorus]

I kind of disagreed. Abenomics will work imo. He may even needs to take it further.

The "zombie" nature for japan economy is mainly due to property bubble burst hitting the core of the average Japanese people. Many people today is still paying the high price of the loan that time and could not cash out even today.

This significantly constrain their spending power. With the Yen weakening, rising property price will theoretically reduce the loan burden as the currency gets cheaper and property price returns to the purchased price to allow them to "cash out" mentally.

Another key aspect of weaken currency is lower cost of Japanese worker. This will reduce the outflow of jobs to other countries. A further weakening is needed i feel to reverse the trend. A SAMSUNG or APPLE emerging within the country may do it as well but right now is not happening.

[specuvestor]

Both views are right. It's the timing that cause the difference in views. Short term wise an inflationary Japan will be positive to the economy.

But structurally Japan pays about 1/3 of its budget in interest. What happens when Japan interest rate goes up from zero? The saving grace is that more than 90% of debt is owned by locals.

But then again japanese population will halve in about 50 years... debt per capita will rise and GDP falls. This is a major structural issue that Spore govt also tries to address, but somewhat too enthusiastically.

[CityFarmer]

Update on Abenomics...

Exports must rise more to sustain recovery: BoJ official

AOMORI — Exports from Japan must strengthen further to maintain an economic recovery that is now driven mostly by domestic demand, a Bank of Japan (BoJ) policymaker told reporters yesterday after meeting business leaders in the northern city of Aomori.

Board member Koji Ishida stuck to the central bank’s assessment that the economy was recovering moderately, pointing to the resilience in personal consumption.

But he warned a slow increase in exports is discouraging companies from boosting capital expenditure and weighing on factory output.

“Most of Japan’s past economic recoveries were driven by exports,” he said. “The recovery now is spurred by domestic demand such as personal consumption, housing investment and public works spending, but exports must start to act as a driving force.”

Japan’s economy expanded at an annualised 3.8 per cent in the June quarter, a third straight quarter of growth, as the feel-good mood generated by Prime Minister Shinzo Abe’s reflationary policies lifts household and corporate spending.

Exports have been rising, but not as strongly as policymakers initially expected as a result of the slowdown in emerging economies, particularly China.

The BoJ hopes overseas growth will accelerate and boost exports in time to make up for any slowdown in household spending after an expected sales tax hike next April. REUTERS
http://www.todayonline.com/business/expo...j-official

[CityFarmer]

Japan ministers disagree on sales tax offset package

TOKYO – Japan’s top two financial ministers openly disagreed on whether a corporate tax cut was needed to cushion any pain from an increase in the sales tax, as the government upgraded its view of the economy on Friday for the seventh time this year.

The two-stage doubling of the sales tax, seen as a test of the government’s resolve to start fixing its tattered finances, looks set to go ahead, with debate now focused on what support measures Prime Minister Shinzo Abe should also introduce.

“The Japanese economy is on the way to recovery at a moderate pace,” the government said in its report for September, a more optimistic view than last month when it said there were some moves towards a sustained recovery.

Mr Abe has tasked Finance Minister Taro Aso and Economics Minister Akira Amari with crafting a package to ensure the tax hike does not derail the escape from deflation, and the two were at loggerheads over what was needed after a cabinet meeting.

Mr Aso dismissed the need to cut the corporate tax rate, a step proposed by the business sector to boost competitiveness, and saw no need to issue new bonds to finance the support package.

“I don’t think the public will accept the government raising the sales tax and cutting the corporate tax rate at the same time,” Mr Aso told reporters.

But Mr Amari, a former trade minister, said a cut in the corporate tax rate was on the table, along with fiscal stimulus and targeted tax breaks to boost capital expenditure.

“There needs to be a combination of steps with immediate stimulus effects and those for long-term growth,” Mr Amari said.

“We have different views than the Finance Ministry on what the limits are from the perspective of ensuring fiscal discipline. But we would like to come up with the best set of measures,” he told a news conference.

Last month, Mr Amari said a corporate tax cut was a long-term option. His change in tone may be a sign the idea is gaining traction within Mr Abe’s inner circle as a way to lift competitiveness.

The sales tax hike is the biggest effort in years by the world’s third-largest economy to contain public debt of more than US$10 trillion (S$12.67 trillion), which at more than twice the value of gross domestic product is the largest burden among major economies.

Under a deal reached last year, before Mr Abe’s government came to power, the 5 per cent sales tax rate will rise to 8 per cent next April and 10 per cent in October 2015.

Sources have said the government is considering a 5 trillion yen (S$63.8 billion) offset package. Such spending would roughly match the revenues generated by a 2 percentage point rise in the sales tax.

Mr Amari has said the package must be bigger than 2 trillion yen, the maximum amount the finance ministry says can be spent without issuing new bonds, to avoid an economic relapse.

But the finance ministry, a strong proponent of the tax rise, and wants to minimise any further spending and is opposed to any permanent tax cuts, including in the corporate tax rate.

Both ministers do agree the support package should include tax breaks to boost corporate capital spending, an area policymakers say is key to a sustained economic recovery.

The government pointed to an increase in capital expenditure as among reasons it raised its economic assessment in September.

On deflation, the government’s view was unchanged from August, saying Japan was approaching an end to deflation as consumer prices excluding fresh food and energy were firming up.

This week, Japan’s economic growth was revised up sharply to an annualised rate of 3.8 per cent in the second quarter. REUTERS
http://www.todayonline.com/business/japa...et-package

[CityFarmer]

Update on Abenomics...

Japan export gains offer growth momentum

TOKYO — Japan’s exports rose the most since 2010 in August, boosting Prime Minister Shinzo Abe’s growth drive although rising energy costs extended the streak of trade deficits to the longest since 1980.

Exports rose 14.7 per cent from a year earlier, the sixth consecutive month of increase, while imports increased 16 per cent. However, Japan’s trade deficit ballooned by a quarter to ¥960.3 billion (S$12 billion), extending a string of shortfalls to 14 months.

A surge in exports to the United States, along with a rebound in shipments to China, are offering momentum to Japan as it prepares for the first sales-tax increase since 1997.

“We are finally seeing a clear recovery in exports, led by a weak yen and a moderate global recovery,” said Mr Takeshi Minami, Chief Economist at the Norinchukin Research Institute. “My biggest concern is the planned sales-tax increase next year. A recovery in exports will help cushion the impact but a higher levy could still be a big drag on the economy, while risks remain in Europe and emerging markets.”
...
http://www.todayonline.com/business/japa...h-momentum