If you have any long-term Japanese investments, sell them soon.
How do you say “Barack” in Japanese?
In part, that’s because the Japanese Prime Minister announced another Keynesian spending binge earlier this year – even though several so-called stimulus plans in Japan have flopped over the past two decades (Keynesian economics doesn’t work anywhere, but that’s a topic for another day).
Adding to the burden of government spending is not exactly prudent behavior for a nation that already has the highest level of debt among all industrialized countries.
But the main reason I’m so pessimistic about Japan is that the government has decided to deal with the problem of runaway government spending by imposing permanently higher taxes on the private sector.
I’m not kidding. Let’s look at parts of a recent Reuters report.
Japan’s Prime Minister Shinzo Abe will…raise the national sales tax to 8 percent in April from 5 percent, a final draft of the government economic plan, seen by Reuters, shows.
Japan’s government isn’t even pretending to restrain spending!
And to make a bad situation even worse, some of the money will be used for yet another faux stimulus package.
Abe ordered his government to compile the stimulus package to be announced on Tuesday. It features public-works spending for the 2020 Tokyo Olympics.
The main problem, though, is that Japan’s real fiscal problem is an ever-increasing burden of government spending. The tax increase won’t solve that problem. Indeed, it will give politicians an excuse to postpone much-need reforms.