The short term effect of Japanese stimulus following the earthquake and tsunami has now worn off. All Japan has to show for that stimulus is a bigger pile of debt, proving once again the Broken Window Fallacy.
In the real world, Japan has a debt-to GDP ratio of 225% and rising. Japan's export machine has stalled. So has Japanese manufacturing in general.
Markit reports Japanese manufacturing output falls for first time in 2012 to date
June data pointed to the first month-on-month reduction in manufacturing output since December 2011, as both new business and new export orders fell. Backlogs of work decreased as a result, while employment growth eased to only a marginal rate. On the price front, factory gate charges fell further in June, in response to a first reduction of average costs in 20 months.Japan Doubles Sales Tax
After adjusting for seasonal factors, the headline Markit/JMMA Purchasing Managers’ Index™ (PMI™) dipped fractionally below the neutral 50.0 threshold in June, to post its lowest reading in seven months.
Commenting on the Japanese Manufacturing PMI survey data, Alex Hamilton, economist at Markit and author of the report said:
“June data suggest that Japan’s manufacturing sector upturn is fading into mid-year, with output and new business falling simultaneously for the first time since December 2011.
Growth in the year to date has been supported by earthquake-related reconstruction projects. The latest survey findings indicate that the boost from these efforts is starting to ebb, however, with investment goods producers noting a particularly sharp fall in output during June. This bodes ill for growth heading into the second half of the year, especially given the fragility of demand in external markets – highlighted by an accelerated fall in new export business during June.”
Japan's lower house voted Tuesday to double the country's sales tax to 10 percent over three years in a bid to rein in a bulging national debt as an aging population burdens the country's social security system.Japan is in a very tight situation. The US will find itself in a similar situation down the road if it listens to misguided economists hell-bent on getting government to waste more money.
The vote, however, shook Prime Minister Yoshihiko Noda's grip on power because of strong opposition from a group within the ruling party led by power broker Ichiro Ozawa that believes the tax hike will weaken the economy. Ozawa and his supporters have threatened to bolt the Democratic Party over the tax issue.
The bill passed easily by a vote of 363-96, with support coming from the two biggest opposition parties. The bill must still pass the less powerful upper house to become law, which is expected.
It calls for raising the sales tax from 5 percent to 8 percent in 2014, and then to 10 percent in 2015.
Even Noda's government projects the tax hike will take only a modest bite out of Japan's deficit. The Cabinet Office forecasts that doubling the sales tax will boost revenues by ¥13.5 trillion ($170 billion) annually by 2015. Japan currently runs a deficit of about ¥45 trillion ($563 billion) a year.
Ruling party veteran Ozawa, who has often criticized Noda and controls a bloc in the ruling party, has suggested he may leave the party and take as many lawmakers as he can with him to form a new one. If 54 or more lawmakers join Ozawa, Noda's party would lose its majority in the key lower house.
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