Following his 2013 election, Japan’s prime minister Shinzo Abe announced his “three arrows” of change to lead the country away from sluggish economic performance and periodic deflation.
The arrows included the central bank’s large-scale “quantitative easing” scam to purchase government and corporate bonds; flexibility in tax rates and government spending; and reforms to spark greater private investment.
But, as we detailed in the Trends Journal, when the three arrows were fired back then, they would miss their targets, growth would remain subpar, and then continue to decline.
Screw the People
Japan’s economy shrank 6.3 percent in 2019’s fourth quarter after the government again increased the nation’s value-added tax, this time from 8 percent to 10, forcing consumers to cut back spending.
The tax increase was targeted to shrink the budget deficit and support care for Japan’s elderly, with 28 percent of the population now 65 or older.
The tax shock, coupled with the slowing global economy and now the coronavirus outbreak, has set Japan on a path to recession, defined as two consecutive quarters of economic contraction. Furthermore, the two consumption tax increases have canceled out any benefit of economic stimulus under Abe, and his overall tenure is marked by contraction, not growth.
TREND FORECAST: Abe’s administration and the central bank will take steps and invent new measures to boost the economy with both monetary and fiscal stimulus, thus putting more downward pressure on the yen… which was considered a safe-haven asset when other currencies become risky.
We forecast measures taken by the government and the central banks will be minimal. Abe’s latest stimulus program has just been approved by the legislature and hasn’t taken effect yet. It is unlikely any additional measures would be enacted soon or have an effect until summer at the earliest.
While there are high expectations for the Bank of Japan to add more short-term energy to the economy by lowering rates, the overnight rate, now at -0.1 percent, is already in negative territory. Haruhiko Kuroda, the bank’s governor, said he is reluctant to cut further for fear of damaging banks.
Kuroda also said he doesn’t expect Japan’s 2020 growth rate to fall “far below” 2019’s but that the bank would expand bond-buying “without hesitation” if needed.
Again, as we have forecast, these measures will do little or nothing to spur economic growth to push the nation out of recession. And, the more money being pumped into the system, the weaker the yen will grow and the faster inflation will rise.
