It's official-no tax hike till 2019, but is it good news?

Good morning everyone,

It's going to be another fantastic day! Cool in the mornings and warm in the middle of the day...what more can you ask for? Well, a day off would be nice...ha ha! The bad news is that they are now calling for rain on Saturday and cloudy weather on Sunday and it the beginning of rainy season? It might be...

Of course we, as consumers, are happy because it means we won't have to pay as much for things. And of course Japan Inc. is happy because people will keep shopping. And all of the LDP (Liberal Democratic Party-the party currently in power in Japan) members are happy, because announcing the delay just a few weeks before the election means they all get a boost in popularity.

However, many mainstream Japanese economists, are concerned more about the long-term effects of delaying the tax hike, saying it will increase the burden on future generations and could seriously erode market confidence in Japanese government bonds.

“If the Abe administration, which is a very powerful government, does not raise the consumption tax, no administration in the future would dare do it,” said Yoshimitsu Kobayashi, head of Japan Association of Corporate Executives, one of the nation’s most influential business lobby groups.

Kobayashi, also chairman of Mitsubishi Chemical Holdings Corp., points out that Japan needs to secure huge funds to cover swelling social security costs for aging baby-boomers, born in the late 1940s and early 50s.

Moreover, Japan’s public debt has exceeded a staggering ¥1,000 trillion. This is more than double the country’s gross domestic product and is the worst of any developed nation.

“I have a sense of crisis, fearing Japan could actually go bankrupt,” Kobayashi told a news conference on May 17.

Most economists agree Japan faces a serious debt problem that could result in significant fiscal trouble.

If the market starts doubting the government’s ability to pay back its debts, it will shun Japanese government bonds and long-term interest rates would surge. That would drastically increase the costs of servicing debt and could, in a worst-case scenario, bankrupt the nation.

But no one is sure about when the tipping point will come. And therein lies the problem, it's too complex to go into detail here, but basically the Japanese economy is balanced on a very thin line and there's no escaping the fact that at some point it is going to fall-it's just a matter of when.

It's too scary to think about this early in the morning...I'll just enjoy the fact that I won't have to rush out and do tons of shopping to save 2% and pray that the economy suddenly starts to grow.

Have a great day!

Post a comment

Private comment