Japan machinery orders jump, giving economy much needed boost

Capital spending has been weak for along time good to see some uplift in it now, this is good news.

How good does the economy need to be before this sales tax hike can be enacted as scheduled?

The guy at Norinchukin says the machinery order numbers are good (and I note it's the fourth straight month of rises...), but still claims weak consumption means it's better to not raise the tax as planned.

Is consumption weak? Retail sales having been increasing after the April hit. http://www.tradingeconomics.com/japan/retail-sales

What am I missing?

In the meantime the cost of Japan's social security system continue to baloon higher and higher, adding more and more unproductive debt.

I thought I'd already sold enough of my yen, but if Abe goes through with this nonsense I'm going to be selling more.

What am I missing?

An uptick in retail sales could very well be seasonal. Kids returning to school, the approach of winter holidays, etc.

Salaries remain stagnant, so, there's no extra income to spend on discretionary purchases. The retail sales could very well have been paid for by mostly credit card purchases, not higher wages.

The economy contracted severely in the months after the tax hike. A single bump in retail sales won't fix that. While Japan isn't the most heavily taxed country in the world, the tax burden is onerous and adding to it won't fix the economy.

Japan's entrepreneurial class remains very small, and not actively encouraged or promoted. Start-ups and small business can produce many new jobs.

Whatever improvement we may see in the economy has nothing to do with the tax hike. Corporate coffers are quite full, and businesses are finally deciding to put their funds to use.

The debt is a product of over-spending. Spending cuts have long been an option the Japanese government has chosen not to exercise.

The other point being missed is that the hike in the consumption tax doesn't contribute to the growth of the economy. Yes, Japan's debt load is gargantuan, and must be dealt with. However, where I differ is that weighing down the economy with added taxation, and reckless government intervention, isn't the answer to Japan's debt woes.

An anemic economy can no more pay down sovereign debt than an unemployed person can address their debts. The economy needs more money coming into, not less. Taxation takes much needed cash out of the economy, and sends it down the black hole we call the government.

Instead of looking at retail sales, focus on income growth, and job creation. These are far better indicators of economic health than a one off rise in retail sales.

If PM Abe is smart, he'll leave the tax as is (or bring it back down to 5%), and get to work on helping the economy instead of impeding its growth with taxation, printing money, and deficit spending. He'll open the economy up to foreign investment, and free trade.

Let's be sure there is no confusion - the tax hike wasn't supposed to improve the economy in the short term, it was supposed to be a start to improve Japan's fiscal situation over the medium to long term. The medium to long term has to actually start sometime, or otherwise it becomes an incredible lie.

Of course tax is not a positive for the economy, but the growing debt itself weighs down the economy too, which cannot be overlooked. The debt is not a freebie.

Sometimes you have to drink some nasty medicine before you get better, and in Japan's case it is very sick and thus unfortunately requires large doses.

Government spending may is indeed a black hole, but the corresponding debt accumulated only makes the black hole suck even more further productive capacity from the economy.

I'd love to spend more money, but the irresponsibility of successive Japanese governments only makes me want to do more to save for my family's future.

Let's be sure there is no confusion - the tax hike wasn't supposed to improve the economy in the short term, it was supposed to be a start to improve Japan's fiscal situation over the medium to long term

No confusion. I was never under any illusions about the affect of the tax hike. However, in the medium to long term, Japan's fiscal situation won't improve without spending cuts, and economic growth. The

Sometimes you have to drink some nasty medicine before you get better, and in Japan's case it is very sick and thus unfortunately requires large doses

Agreed, however, the nasty medicine should be spending cuts, not tax rises. The consequences of continued tax and spend policies are very clear.

http://ieconomics.com/japan-income-growth

For the tax hike to really work, there also needs to be cuts in personal income tax, and business taxes. This hasn't happened. Consumers have no incentive, and even less means, to go out on a "virtuous cycle of consumption" if their incomes remain stagnant.

Government spending may is indeed a black hole, but the corresponding debt accumulated only makes the black hole suck even more further productive capacity from the economy.

No doubt, but, higher taxes only aggravate that problem. Taking more money out of the economy when it needs more isn't going to reduce the overall debt load.

I don't dispute the need to pay down the debt. I just don't think that kicking a heavily taxed, less confident consumer in the teeth is the way to do it. Placing obstacles to growth doesn't generate revenue.

If personal income taxes, and business taxes had been cut significantly to deal with the higher costs the consumption tax brings on, I'd agree with you 100%.

Tax cuts would go a long way to promoting consumer spending, and corporate investment, not to mention wage increases. Add more free trade, and less government intervention, you have a formula for improving Japan's fiscal situation.

In Japan, there is no imminent threat of a debt crisis. Yields on Japanese government bonds are as low as ever. The market for JGBs is still dominated by loyal Japanese savers and institutions. At some point, however, action will be needed. The cost of servicing it eats up over half of tax revenues. Japanese savers ability to step in and reliably soak up new debt each year will start dwindling in the near future. An ageing population means a falling savings rate as people retire and draw down income. But as Japanese firms choose to invest more, company cash balances are set to fall too.

“Still, given weak consumption, it is wise not to proceed with the planned tax hike next year.”

"Tax cuts would go a long way to promoting consumer spending, and corporate investment, not to mention wage increases. Add more free trade, and less government intervention, you have a formula for improving Japan's fiscal situation."

"Let's be sure there is no confusion - the tax hike wasn't supposed to improve the economy in the short term, it was supposed to be a start to improve Japan's fiscal situation over the medium to long term. The medium to long term has to actually start sometime, or otherwise it becomes an incredible lie. Of course tax is not a positive for the economy, but the growing debt itself weighs down the economy too, which cannot be overlooked. The debt is not a freebie. Sometimes you have to drink some nasty medicine before you get better, and in Japan's case it is very sick and thus unfortunately requires large doses."

Well, the tax hike hasn't improved the government's fiscal situation, has it? I'm in favor of cutting the tax back to 5% or the original 3% and CUT GOVERNMENT SPENDING TO THE POINT WHERE THEY'RE NOT SPENDING MORE THAN THEY TAKE IN.

Serrano taxes usually do not go down, especially consumption taxes, ever heard or seen one that has?

sfjp330,

A crisis is never imminent until it is. Mega-banks etc have actually been selling down their JGBs holdings. The BOJ is the dominatrix. The BOJ is currently buying up more debt than the spend-thrift government is issuing, which is why yields are so low. The JGB market no longer has much meaning, but the sinking currency still tells a tale.

Serrano,

Well, the tax hike hasn't improved the government's fiscal situation, has it?

Consumption tax revenues are up, and apparently corporate profits are up which is boosting tax revenues there as well, but indeed it seems the economy hasn't been able to tax the hike so well.

I'm all for spending cuts, but I fear that this country doesn't have the guts to alternatively make the necessary cuts, and the most probably outcome I see is that the currency continues to sink lower and lower.

Consumption tax revenues are up, and apparently corporate profits are up which is boosting tax revenues there as well, but indeed it seems the economy hasn't been able to tax the hike so well.

Higher corporate profits don't necessarily lead to higher incomes, or lower unemployment. Economic growth is non-existent, and disposable incomes are down, and have less buying power.

http://ieconomics.com/japan-income-growth

The government having more revenue means much needed cash will be siphoned from the economy. Less cash for purchases (essential and discretionary), less capital to invest in expanding business, or starting new ones.

In the developed world, governments already collect a lot of money in taxes. Moreover, many people are actually paying too much tax. The Japanese government, like many others, cannot truthfully say it doesn't collect enough money.

Working people need to keep more of their wages, and businesses more of their profits. Right now, the government expects people to spend more of their stagnant, stretched wages. It makes no sense.

PM Abe goes on about a future of "virtuous consumption" then does everything he can to make sure that it never happens.