Fresh news from the Japanese government help see more clearly what's cooking. I now have more info to back up my analysis of Japan’s QE and monetary policy.
The government’s budget draft for fiscal 2015 unveils more of Abe’s agenda and what is to expect for Japan over the next few years. Simply put, Abe and his folks think that Japan has to stop living on credit and start paying back their debt. And that’s an absolutely huge change !
What makes me think this ?
Abe had promised to halve Japan’s debt ratio from 2010 levels by the 2020s. However the new draft budget for the year starting April 1st is a record ¥96.3 trillion, up from 95.9 trillion for last year.
Welfare costs in Japan are surging due to the increasing elderly population and the number of families living on welfare hit a historical record. Medical care spending is set to rise ¥1 trillion to ¥31.5 trillion, and the government wants to implement new measures to better support families with children, for a cost of ¥1.35 trillion. Debt servicing, interest payments and redemptions are also set to rise about ¥200 billion to ¥23.5 trillion.
So how will Japan finance all this?
Abe’s plan is to issue less debt, cutting bond issuance by ¥4.4 trillion to ¥36.9 trillion, and to use new tax revenue from the tax hike to cover this budget. Debt will finance about 38% of the budget (down from 43%). This calculation is based on the expectation that consumption tax revenue for fiscal 2015 will increase by ¥8.2 trillion from ¥54.5 trillion (the rise was of ¥4.5 trillion in 2014).
The budget deficit is projected at 3% of GDP, excluding new bond sales and debt servicing.
Does this seem reasonable ?
No. How can you expect consumption tax revenue to increase when consumption is down? The rise in 2014 was due solely to the rate being bumped from 5% to 8%. The next hike to 10% has been pushed back to 2017.
Another proof that consumption is down is the fact that Japanese consumers are increasingly
looking for lower cost vehicles. In 2014 Daihatsu's Tanto minivan was the country's best seller, with 234,456 units up 62%.
Daihatsu, a Toyota subsidiary specialized in "kei-jidôsha"light motor vehicles with engines of less than 660cc, won the annual best-selling title for the first time. Tax, insurance and maintenance cost of such light vehicles are significantly lower than those of regular cars.
The Tanto is the first kei-jidôsha to top Japan's rankings since Suzuki’s Wagon R in 2008. Seven light motor vehicles are in the top 10 list.
The government’s budget draft for fiscal 2015 unveils more of Abe’s agenda and what is to expect for Japan over the next few years. Simply put, Abe and his folks think that Japan has to stop living on credit and start paying back their debt. And that’s an absolutely huge change !
What makes me think this ?
Abe had promised to halve Japan’s debt ratio from 2010 levels by the 2020s. However the new draft budget for the year starting April 1st is a record ¥96.3 trillion, up from 95.9 trillion for last year.
Welfare costs in Japan are surging due to the increasing elderly population and the number of families living on welfare hit a historical record. Medical care spending is set to rise ¥1 trillion to ¥31.5 trillion, and the government wants to implement new measures to better support families with children, for a cost of ¥1.35 trillion. Debt servicing, interest payments and redemptions are also set to rise about ¥200 billion to ¥23.5 trillion.
So how will Japan finance all this?
Abe’s plan is to issue less debt, cutting bond issuance by ¥4.4 trillion to ¥36.9 trillion, and to use new tax revenue from the tax hike to cover this budget. Debt will finance about 38% of the budget (down from 43%). This calculation is based on the expectation that consumption tax revenue for fiscal 2015 will increase by ¥8.2 trillion from ¥54.5 trillion (the rise was of ¥4.5 trillion in 2014).
The budget deficit is projected at 3% of GDP, excluding new bond sales and debt servicing.
Does this seem reasonable ?
No. How can you expect consumption tax revenue to increase when consumption is down? The rise in 2014 was due solely to the rate being bumped from 5% to 8%. The next hike to 10% has been pushed back to 2017.
Another proof that consumption is down is the fact that Japanese consumers are increasingly
Daihatsu, a Toyota subsidiary specialized in "kei-jidôsha"light motor vehicles with engines of less than 660cc, won the annual best-selling title for the first time. Tax, insurance and maintenance cost of such light vehicles are significantly lower than those of regular cars.
The Tanto is the first kei-jidôsha to top Japan's rankings since Suzuki’s Wagon R in 2008. Seven light motor vehicles are in the top 10 list.
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