Despite heightened central banking actions, increased spending and government reforms – otherwise colloquially known as Abenomics – the nation of Japan has slipped back into a recession in the third quarter as consumers decided to put their wallets away during the July-to-September period.
The gross domestic product declined by 1.6 percent in the third quarter, followed by a 7.3 percent drop in the second quarter. The third-largest economy in the world is projected to bounce back by 2.1 percent in the next quarter, but experts concede that consumption and exports continue to weaken, which has caused companies to maintain immense inventories.
In the third quarter, private consumption jumped by only 0.4 percent, while capital spending fell 0.2 percent. This is the biggest contraction in spending in five years, which has been attributed to the sales tax hike from five to eight percent in April.
The troubling economic figures will likely prompt Japanese Prime Minister Shinzo Abe to delay a two-percent sales tax hike by 18 months as well as call an election for Parliament’s lower house two years prior to the next scheduled election. However, after returning from a weekend overseas trip, the prime minister told reporters that he was going to look at the GDP data before making a decision to postpone a sales tax hike.
Economy Minister Akira Amari told Reuters that additional stimulus will likely be applied, but the size remains in question because Japan cannot move ahead with greater financial tools, citing further risks deteriorating its financial state.
An advisor to Abe, meanwhile, called the results “shocking.” The advisor noted that the government will take action to remedy this matter and generate economic growth. Although most economists concur that Japan’s internal finances are getting worse, now would not be the time to raise consumption levies, says a plethora of financial experts.
“It feels like you need to delay it [sales tax] indefinitely,” Mitsubishi UFJ chief economist Goshi Kataoka told the Wall Street Journal. “You must be aware there is now a risk of a reversal in the positive current created by Abenomics. … The government has no time to waste in putting together a stimulus package.”
Others said that this is an indication that Abenomics hasn’t been much of a success.
“It looks like the Japanese economy has dropped the baton, failing to transfer from earlier solidness in private consumption boosted by expectations for the Abenomics to stronger exports on the back of a weaker yen,” said Yasunari Ueno, chief market economist at Mizuho Securities.
This economic news comes a couple of weeks after the Bank of Japan (BOJ) announced that it would boost its purchases of government bonds and other assets by as much as 20 trillion yen ($181 billion) for a total of 80 trillion yen ($725 billion) annually. The central bank’s initiative is part of an effort to reverse fears over deflation and finally meet its two percent inflation rate target, though price inflation has remained above three percent.
David Stockman, budget director in the Reagan administration and author of “The Great Deformation,” referred to the monetary policy directive as just another addition to its Ponzi scheme.
“In fact, this was just the beginning of a Ponzi scheme so vast that in a matter of seconds its ignited the Japanese stock averages by 5%. And here’s the reason: Japan Inc. is fixing to inject a massive bid into the stock market based on a monumental emission of central bank credit created out of thin air. So doing, it has generated the greatest front-running frenzy ever recorded,” wrote Stockman.
“The scheme is so insane that the surge of markets around the world in response to the BOJ’s announcement is proof positive that the mother of all central bank bubbles now envelopes the entire globe. Specifically, in order to go on a stock buying spree, Japan’s state pension fund (the GPIF) intends to dump massive amounts of Japanese government bonds (JCB’s). This will enable it to reduce its government bond holdings—built up over decades—– from about 60% to only 35% of its portfolio.”
United States stocks decreased in the opening Monday trading session, while the Nikkei has fallen nearly three percent.
