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IMF nearly halves Japan's 2014 growth forecast

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The Washington-based IMF said it now expects the economy to expand 0.9% this year—against 1.6% growth forecast in July—after a sharp contraction in the second quarter.

It also cut its 2015 growth projection to 0.8% from 1%,

And the BOJ and Abe want 2% inflation. Sounds like the old term "stagflation". Dangerous game Abe and the BOJ are playing.

-3 ( +2 / -5 )

How trustworthy are IMF numbers?

4 ( +4 / -0 )

It's like they're surprised? Jt posters is smarter them the IMF. Or is the IMF just an evil entity looking to destroy countries.

3 ( +4 / -1 )

I trust the IMF more than I trust the Japanese government. The IMF has no pressure on it to tell fibs or deny reality in order to get re-elected. And the IMF has it largely right.

Yes, Japan's economy needs deeper reforms and deregulation.

Yes, the government needs to build a track record of fiscal discipline.

But just raising the consumption tax twice isn't enough. The Ministry of Finance must also reject large wathes of the record 100+ trillion yen of spending requests that were recently submitted to it. Anyone can raise taxes, but if you can't stop spending more money than you bring in in revenues you can't proclaim you've achieved "fiscal discipline". If you can't even reduce overspending, all the more so. The MOF must produce a budget that spends less next fiscal year that the last. And they must do that until the budget deficit is eliminated. That is fiscal discipline.

As the IMF says, the government needs to produce a plan of how it's going to achieve it's targets, and then execute it. Hail the IMF.

“But the sharp economic contraction in the second quarter… is expected to be short lived, with a moderate pace of recovery returning thereafter.

I believe this goes against the median forecast of JT commenters, but I am in the IMF's camp on this.

Earlier Tuesday, Japan’s central bank held off expanding its asset-purchase program, but there is growing speculation that policymakers will be forced to turn on the monetary easing tap later this year.

All the speculation was originally that the BOJ would act in July (never happened). Those BOJ watchers have no special insights. People should just read and listen to what Kuroda says, and take that as the forecast. Kuroda himself has not decided any future course yet, I am sure.

I personally can't see the BOJ easing further (beyond extending it's existing program) given the recent surge in the dollar. No need to do anything that might weaken the yen further at this stage. It'll likely keep going down as it is.

-1 ( +2 / -3 )

More of the IMF pushing their irrational and bankrupt ideology. You can safely ignore everything they say, except for the purpose of understanding why things always get worse and not better.

3 ( +5 / -2 )

Raise th econsumption tax on the middle class and poor on across the board goods. So stupid.

But lowering corporate taxes. So stupid.

-2 ( +2 / -4 )

The IMF - Professional Doomsayers.

1 ( +3 / -2 )

Abe needs to push his reforms through, get tough on the BS open markets get things moving.

0 ( +1 / -1 )

"implementation of the second consumption tax increase is critical to establish a track record of fiscal discipline"

"Fiscal discipline" is normally defined as spending less thn you earn, not spending two-and-half times what you earn, and confiscating the funds you need to pay for your economic mismanagement from an already hard-squeezed populace.

The IMF is part of the problem, so it can't be trusted to recommend solutions.

0 ( +3 / -3 )

""Fiscal discipline" is normally defined as spending less thn you earn, not spending two-and-half times what you earn, and confiscating the funds you need to pay for your economic mismanagement from an already hard-squeezed populace."

Hear! Hear!

1 ( +3 / -2 )

I'm consistently surprised at how JT posters like @John Galt consistently get upvoted with their "Abe is horrible" mentality with little to no clout, while rational people like @fxgai are downvoted for posting reasonable arguments with a clear understanding of how economics works.

There are plenty of third party doomsayers, but glad that the IMF is at least getting some recognition.

2 ( +3 / -1 )

More of the IMF pushing their irrational and bankrupt ideology. You can safely ignore everything they say, except for the purpose of understanding why things always get worse and not better.

Pretty much so. These are the same people back in May that no only purshed for the 10% increase in 2015, they want a 15% rate in the future.

While I agree to the new Japanese policy of 'matching' consumption tax revenue with the citizens' social service costs, it doesn't do a whole lot of good when these elder people who are large 'receipients' of these don't spend but rather keep in their bank accounts.

0 ( +2 / -2 )

Drop consumption taxes and CUT SPENDING.

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IMF nearly halves Japan's 2014 growth forecast

Blindfold on? Check!

Dart in hand? Check!

Spin around 5 times? Check!

Throw dart board and bingo a new forecast that will be revised in 3 months!

lostrune2Oct. 08, 2014 - 09:00AM JST How trustworthy are IMF numbers?

The IMF doesn't have the greatest track record when it comes to predicting the future, but who does?

http://www.forbes.com/sites/gordonchang/2014/09/14/imf-formula-china-gdp-grew-2-2-in-2013/

http://blogs.wsj.com/simonnixon/2014/07/11/imf-gets-it-wrong-again/

http://blogs.wsj.com/simonnixon/2014/04/11/open-season-on-the-imf/

http://www.zerohedge.com/news/2014-04-08/comedy-forecast-errors-here-are-imfs-latest-projections-economic-growth

http://www.zerohedge.com/news/2014-10-07/imf-comedy-hour-complete-history-imfs-growth-forecasts-2012

3 ( +3 / -0 )

nigelboy,

Even if it isn't your favourite plan of action, the IMF's support for consumption tax hikes is still at least better than Japan continuing on as is. It's Japan's dire fiscal situation that is the problem, not that the IMF has offered it's ideas on how it might start to be addressed (I don't think they go far enough though).

Japan needs to discuss if it makes sense in the first place to dole out large amounts of money to people who can afford to simply leave it in their 0.1% yielding bank accounts. (But of course it does because the people getting the money have more political power than those who don't!)

If Japan wants to have a redistributionist society then taxes will have to go up (plus a same-old economy?). The alternative is to redistribute less and have lower taxes (plus a better economy?). Or to just change nothing until suffering admonishment by the financial markets (a destroyed economy?).

1 ( +1 / -0 )

But the Fund added that Japan’s economy would bounce back and pressed Tokyo to follow through on plans to raise consumption taxes again next year to contain a huge national debt.

The IMF is essentially recommending that the government continue to impede growth. With no real increase in wages, consumers can't spend more money on discretionary purchases, which means the tax increase will not deliver the kind of revenue to rein in the national debt.

implementation of the second consumption tax increase is critical to establish a track record of fiscal discipline.

Spending cuts would do far more to "establish a track record of fiscal discipline" than tax increases. There's nothing bold, or responsible about imposing higher taxes on a workforce and business community that is already heavily taxed.

But the sharp economic contraction in the second quarter… is expected to be short lived, with a moderate pace of recovery returning thereafter.

A very rosy, unfounded prediction. Perhaps in an economist's world of charts, assumptions, and theory, the "recovery" will return at a "moderate pace". However, in the real world of working people, small/medium business, the recovery is practically non-existent.

I trust the IMF more than I trust the Japanese government. The IMF has no pressure on it to tell fibs or deny reality in order to get re-elected. And the IMF has it largely right.

Fair point, fxgai. Government is, unfortunately, an untrustworthy institution. However, that the IMF is relatively more trustworthy doesn't mean it has the interests of working people at heart. Certainly, the Japanese government isn't thinking of the average Japanese person.

The IMF, in its recommendations, is showing a callous disregard for the Japanese economy. The OECD, and the IMF aren't prioritizing growth.

While it is not a government institution, the employees of the IMF enjoy plum salaries. The people making these recommendations aren't people working many hours a week just to support themselves and their families.

http://www.imf.org/external/pubs/ft/ar/2013/eng/pdf/webtable54.pdf

I place more stock in the input from working people, executives, the few people who own businesses etc. People who are living this economy, experiencing it first hand. The feedback I'm getting contradicts the IMF, OECD, and the Japanese government.

Abenomics, if successful, is expected to bring about 2% growth over ten years as prosperity. It aspires to mediocrity, and condemns Japan to increasing debt, and anemic economic growth.

1 ( +1 / -0 )

Even if it isn't your favourite plan of action, the IMF's support for consumption tax hikes is still at least better than Japan continuing on as is. It's Japan's dire fiscal situation that is the problem, not that the IMF has offered it's ideas on how it might start to be addressed (I don't think they go far enough though).

Sorry fxgai. What I stated was I'm in favor of matching certain tax revenue to that of certain costs (in this case, consumption costs with social service costs) but considering that the said social service costs, the bulk being pension payments (of course, recepients being the elder) don't spend (i.e. consume which in turn, doesn't generate consumption tax revenue), raising the percentage doesn't help for it basically leads to less consumption especially among the cash rich elder population.

1 ( +1 / -0 )

Yeah in a normal country that's a nice policy idea. In Japan's case, I think that was all just BS. It's not like the consumption tax is spent in any specific way, it just goes into the pot with all the deficit financing and money is doled out.

considering that the said social service costs, the bulk being pension payments (of course, recepients being the elder) don't spend (i.e. consume which in turn, doesn't generate consumption tax revenue), raising the percentage doesn't help for it basically leads to less consumption especially among the cash rich elder population.

If raising revenue is what you mean by "help", then I don't follow here. Elderly folks probably don't buy so many new houses and cars and kitchen appliances, but they do spend money on some stuff like food and sake. What is it that the elderly are consuming less of because of the consumption tax hike? They tend to have loads of money anyway, they might as well spend it before inflation gets it. At least if I was an old person with cash that'd probably be my attitude.

0 ( +0 / -0 )

Yeah in a normal country that's a nice policy idea. In Japan's case, I think that was all just BS. It's not like the consumption tax is spent in any specific way, it just goes into the pot with all the deficit financing and money is doled out.

The new law changed that.

If raising revenue is what you mean by "help", then I don't follow here. Elderly folks probably don't buy so many new houses and cars and kitchen appliances, but they do spend money on some stuff like food and sake. What is it that the elderly are consuming less of because of the consumption tax hike? They tend to have loads of money anyway, they might as well spend it before inflation gets it. At least if I was an old person with cash that'd probably be my attitude.

Hence the new policy in regards to inheritanceand gift tax where the government is trying to at least have these elderly coff up their savings to their childeren so they can spend.

Do you even follow the news?

-2 ( +0 / -2 )

Is this the same IMF that told the UK not to go a head with austerity cuts - the same UK that is a growing economy while reducing its deficits.

1 ( +1 / -0 )

they might as well spend it before inflation gets it. At least if I was an old person with cash that'd probably be my attitude.

Perhaps for yourself, that would be fine, but the elderly need their cash to pay for their living costs-which aren't cheap. If I were an aged person, I'd do my level best to ensure my loved ones had some cash when I pass on, or in the event I need extensive care, and support.

What will "get" retirees' incomes are higher tax burdens which create higher living costs. Let's not forget that the yen is falling way past the point where its devaluation helps. Imports like oil, fruit, etc, will cost that much more to get.

The aged, including baby-boomers are an easy target, but, one should remember the money they have was earned through decades of hard work, and long hours.

-1 ( +0 / -1 )

Six months ago Abe was pleading with employers to raise wages. The result? Apart from those working for a few poster child firms, most seishaiin have seen next to zero change in their monthly pay check. Ditto the swelling ranks of contract staff, those exploitable and expendable cushions that industry has no compunctions about squeezing whenever times are tough. With the tanking yen raising the price of most supermarket staples and with further pain to follow when the consumption tax is jacked up another 2% next year, is it any surprise that the masses are no longer buying the message on offer and are refusing to open their wallets in furtherance of Abe's agenda. There's mutiny in the air and no amount of dressing up the truth is going to convince hard put upon Mr and Mrs Sato to throw caution to the wind and put the house on number 10 in the last race.

0 ( +0 / -0 )

Why should food be taxed by any government ?

Many people are on the poverty line and those with children need to pay more tax for their kids to eat?

Truly we are being 'governed' !

-1 ( +0 / -1 )

nigelboy,

I try to follow the news, but certainly conceivable that I miss things.

The new law changed that.

I must have missed it. What's the story, the consumption tax is actually earmarked for the bulging social security spending bill?

I'm not sure how much this matters given the amount of deficit spending in total, but if it's a step towards Japan's government living within the means of the country, then it sounds good. Still a long way to go though.

Hence the new policy in regards to inheritanceand gift tax where the government is trying to at least have these elderly coff up their savings to their childeren so they can spend.

I did see this particular news, but so far as I could gather it was hardly a free hand for the old people to spend money as they pleased. It was like an tax exemption in the case the money is spent on grandkids education as I remember, but I think they should just abolish gift/inheritance taxes entirely.

JBinJapan,

Sure you want to keep some money in later life, but at that stage in my life I doubt I'll see much point in hoarding too much cash either.

Maybe I am coming across as an elderly basher, but this segment of society in Japan is the one with all the riches. Everyone works hard and works long hours. The hard truth that Japan faces is that it just can't afford to keep pampering the wealthy (the elderly) with pensions in excess of what the elderly actually require.

If they hadn't saved so much during their working lives then sure it'd make sense to me that they get pensions to help them live, but my basic understanding is that they did a pretty good job of saving for themselves. The high saving Japanese household is one of the typical stereotypes people have of Japan, but things have been changing over the past decade or so. Household saving rates used to be well in excess of 10%, but are now around 3%. If anyone needs help it's the people who are working now, so that they can save for their retirements too.

Cutting welfare for the wealthy and cutting tax for the workers is the policy I'd like to see in Japan.

0 ( +0 / -0 )

The hard truth that Japan faces is that it just can't afford to keep pampering the wealthy (the elderly) with pensions in excess of what the elderly actually require.

I'd agree except for two points. One, the government pension payouts are small potatoes, considering contributions made over a an average working life-even smaller when considering inflation, interest those funds could've accrued in an RSP or mutual fund.

Two, if you had paid into a fund for 40 years, costing you a sizeable chunk of your net income every month, you'd want something in return. I've been in Japan for some time. I see aged people helping care for their grandchildren, support unemployed children, give to charity. The money does go back into the economy.

The hard truth that Japan faces is that it just can't afford to keep pampering the wealthy (the elderly) with pensions in excess of what the elderly actually require.

If there's any group who is pampered its the people who sit in the Diet-and there are far too many of them considering the population. Bureaucrats as well have it made. The government also favours large, traditional, established companies over small businesses and entrepreneurs.

Cutting welfare for the wealthy and cutting tax for the workers is the policy I'd like to see in Japan.

Amen! That's why I think the consumption tax rise has to go. It kicks workers right in the teeth. Artificially inflated prices on essentials like food, medicine, transport, and shelter aren't going to help the working people of Japan.

2 ( +2 / -0 )

I'd agree except for two points. One, the government pension payouts are small potatoes, considering contributions made over a an average working life

I understand your point, but as unfair as it may be, the existing system just doesn't work anymore. There aren't enough young people to keep the scheme running sustainably. If the system is kept as is, it's either ever increasing taxes for the shrinking workforce, or the government going further into debt (and praying there are no consequences for it), or an economic miracle.

Two, if you had paid into a fund for 40 years, costing you a sizeable chunk of your net income every month, you'd want something in return.

True. But it isn't really a fund, it's a so-called pay-as-you-go system, which means today's workers pay for today's retirees, not today's workers paying for their own future retirement. This is why the system is broken, because of the increasing proportion of retirees to workers.

If there's any group who is pampered its the people who sit in the Diet

Yeah, but unfortunately we could cut that cost by 75% and Japan's finances would still be a mess.

0 ( +0 / -0 )

it's either ever increasing taxes for the shrinking workforce, or the government going further into debt

Cuts in spending should be done first and foremost.

Increasing taxes on a shrinking workforce has dire consequences, which we're seeing now. Lower consumer spending, which impacts businesses (especially those that deal in discretionary goods or services).

Taxing people isn't the only recourse for the government. As I've stated in other posts, openning the Japanese market to foreign investment would go a long way to boosting the economy, and reducing unemployment.

But it isn't really a fund, it's a so-called pay-as-you-go system, which means today's workers pay for today's retirees,

Fair point, but all the same, retirees today took care of the retirees of yesterday. They still paid premiums into the system, regardless of how the money is dispensed, there's no legit reason to tell them "Thanks for paying much of your net income into the system, but, you're not getting what had been promised to you decades ago."

I don't see that going over very well. People don't pay into a system expecting nothing in return. Paying out pension premiums today has a huge cost when you factor in inflation, and, more importantly, opportunity.

Perhaps this would be a good time for the Japanese government to promote RSPs, mutual funds, etc to those working now. The current system of relying on government and employers is very old-fashioned. Private retirement plans are the way to go. The government should consider allowing people to use their RSPs, etc as tax deductions.

I agree, the system is flawed, but shafting people who have worked hard for thirty to forty years would ruin Japan's reputation. Japanese people may (unwisely) buy government bonds, but overseas markets wouldn't.

The national debt is the direct result of spending, not the lack of taxation. The government should use its existing revenues more efficiently rather than kick working people, and the economy in the teeth.

There are governments that probably could impose more/higher taxes on their citizens and businesses, Japan's isn't one of them. Canada, the EU, even the USA, people are paying too much tax.

PM Abe should be more market minded, and loosen the government's control of business. The economy is the key to problems like unemployment, and debt. An effort to fix the economy has to be made. Right now, the tax rise is choking the economy. Worse, it's unfair to Japan's heavily taxed population, and businesses.

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