Japan Economic Situation (MBrew 02-28)

After raising a controversial sales tax for the third time last October, Japan posted its second-worst quarter in a decade. GDP in Q4 2019 fell 6.3% on an annualized basis, driven by an 11.5% drop in consumer spending.  Those numbers were bad before the coronavirus hit. The outbreak, which has infected over 71,000 people, cost Japan critical tourism revenue from January's Lunar New Year holiday and threw supply chains for a loop.  If Japan’s GDP shrinks this quarter (as expected), the world's third-largest economy will be in a recession.  The tax Japan introduced the consumption tax in 1989, then bumped it to 5% in 1997 and 8% in 2014.   Prime Minister Shinzo Abe was responsible for that last hike. Arriving in office (for the second time) in 201

After raising a controversial sales tax for the third time last October, Japan posted its second-worst quarter in a decade. GDP in Q4 2019 fell 6.3% on an annualized basis, driven by an 11.5% drop in consumer spending.  Those numbers were bad before the coronavirus hit. The outbreak, which has infected over 71,000 people, cost Japan critical tourism revenue from January's Lunar New Year holiday and threw supply chains for a loop.  If Japan’s GDP shrinks this quarter (as expected), the world's third-largest economy will be in a recession.  The tax Japan introduced the consumption tax in 1989, then bumped it to 5% in 1997 and 8% in 2014.   Prime Minister Shinzo Abe was responsible for that last hike. Arriving in office (for the second time) in 2012, he's improved Japan's deflation, investment, and unemployment levels, but household consumption has remained frustratingly low, growing just 2.6% in real terms over the last 10 years.  But Japan's massive debt load (240% of GDP) and social programs won’t pay for themselves, so Abe bumped up the tax again to 10% and paired it with stimulus measures to offset potential negative impacts.  Critics of Abe have plenty of ammunition Over the last 25 years, Japan's three worst quarters for household consumption coincided with consumption tax hikes, according to the WSJ. And inflation dipped into the negatives in October, which suggests companies are being more cautious and cutting prices to keep demand up, according to the FT. Big picture: While the Fed and European Central Bank launched stimulus measures last year, the Bank of Japan hung tight. But it's running out of options just as the coronavirus curveball leaves the country on the brink of another downturn.

2, he's improved Japan's deflation, investment, and unemployment levels, but household consumption has remained frustratingly low, growing just 2.6% in real terms over the last 10 years.  But Japan's massive debt load (240% of GDP) and social programs won’t pay for themselves, so Abe bumped up the tax again to 10% and paired it with stimulus measures to offset potential negative impacts.  Critics of Abe have plenty of ammunition Over the last 25 years, Japan's three worst quarters for household consumption coincided with consumption tax hikes, according to the WSJ. And inflation dipped into the negatives in October, which suggests companies are being more cautious and cutting prices to keep demand up, according to the FT. Big picture: While the Fed and European Central Bank launched stimulus measures last year, the Bank of Japan hung tight. But it's running out of options just as the coronavirus curveball leaves the country on the brink of another downturn.