Japan’s economy: About that debt

Posted: November 19, 2014 in economy
Tags: , ,

IT HAS been a tumultuous couple of weeks for Japanese policy makers. First, the Bank of Japan dramatically scaled up its quantitative easing programme in response to weak growth and inflation figures. Then, new data revealed that the Japanese economy shrank at a 1.6% annual pace in the third quarter, when growth had been expected. That decline was the second quarterly contraction in a row, putting Japan in a technical recession. And today Shinzo Abe, the prime minister, called snap elections with an eye toward building a mandate to postpone an imminent rise in Japan’s consumption tax. The consumption tax rise is part of a strategy designed to get Japan’s government debt under control; Japanese government debt is now above 240% of GDP and the government continues to run deficits of around 8% of GDP per year. But the first part of the deficit-reduction strategy, an initial rise in the consumption tax which took place earlier this year, seems to have been a significant contributor to the Japanese economic slowdown. Japan’s travails suggest a couple of key questions. First, what is going on with the economy that a consumption tax increase throws it back into recession? it may seem odd that an increase in the consumption tax from 5% to 8% could derail what had been until the second quarter of this year a relatively robust looking recovery. I’m not sure how surprised we …

via Economic Crisis http://ift.tt/1taSEF9


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