Land of the Rising Unease Japan’s economy shows signs of sputtering on the eve of a tax hike.
https://www.wsj.com/articles/land-of-the-rising-unease-11554333457
Japan is joining much of the world in facing weaker economic growth, but in one respect it’s unique. Prime Minister Shinzo Abe seems determined to make it worse by imposing a tax increase later this year.
This week’s survey of business confidence from the Bank of Japan makes for bracing reading. Confidence among large manufacturers fell to 12 from 19 in December, the steepest decline since 2013. Smaller manufacturers shared the gloom. This follows anemic retail sales and weak growth in industrial production in February after several months of contraction. The economy eked out GDP growth of 0.8% in 2018 and may struggle to match that this year.
Foreign pressures aren’t helping Japan, including President Trump’s trade war with China, which has Asian economies caught in the crossfire. Japan’s export-dependent economy remains vulnerable to slower growth in Europe and China.
Yet domestic problems are also in play. Mr. Abe’s economic revival program, Abenomics, still hasn’t fully launched as it enters its eighth year. He delivered more government spending and an unprecedented monetary blowout, but the policy reforms intended as the “third arrow” of the plan never took flight. This is weighing on investment and productivity growth.
Mr. Abe now plans to wallop the economy with a value-added tax increase in October to 10% from 8%. Businesses and households know how this will end since they’ve seen it before. Every time Tokyo has raised this consumption-tax rate since 1997, a pronounced slowdown or recession has followed. Mr. Abe delayed another increase after his 2014 rise to 8% from 5% stalled the economy, but fiscal scolds in the Finance Ministry are now pressuring him to raise taxes to reduce deficits and debt. Somehow debt keeps rising even after the tax increases. No wonder forward-looking confidence measures are dropping.
Japan has tried to break out of its growth slump year after year with more Keynesian spending and monetary exertions like negative interest rates, but it hasn’t worked. Faster global growth and less trade feuding from Washington would help Japan. But Mr. Abe’s tax increase will be a case of self-inflicted damage.
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