Abe-Kuroda honeymoon soured by fiscal friction

You can't achieve "fiscal consolidation" and stimulate the economy at the same time, given Japan's current circumstances. You do one... or you do the other.

These boys should have paid more attention during economics class.

A rift!

Thank heaven for that.

So there are people in high places who haven't swallowed the Abe KoolAid and who can see reason.

I hope more people stand up to this dangerous idiot and he gets booted out before he does any more harm.

@Klauds, it's important to know who holds Japan's debt and why it can do this. Japan can continue as is until that it, the holders of the debt at some point say, 'Hey, wait minute. I want my return.' But until that day, the printers will keep on humming... because as long as they blindly buy the debt, and interest rates don't go up, so they can practically run up the debt indefinitely. The issues start when everyone starts wondering how they will get the money back.

While historically having a good export surplus; Japan still has two "lost decades", where it has experienced no economic growth. This is mainly due to the large amounts of debt.

Do you see? Round and round and round until the collapse.

Popular sentiment in Japan is that the smartest of the smart, Graduates of the Faculty of Law, University of Tokyo, end up as career bureaucrats at the Ministry of Finance. Those in the know, however, know that the really smart guys and girls (those without a serious chip on their shoulder) go to the Bank of Japan. Traditionally, the folks at the Ministry of Finance have tended to be stooges for the government of the day, while the BoJ boffins are old school central bankers. The other tradition (broken only recently) is that the BoJ loves its independence, and would suffer an ex-Ministry of Finance buffoon on pain of death.

Now knowing my fair share of grad school classmates that ended up working for either the Ministry of Finance or the BoJ, if this story is true, there must be a lot of smiling central bankers. Indeed, if Kuroda gets the boot, I reckon he will have no shortage of volunteers to help him clean out his office. Then again, I suppose the biggest concern for the people at the BoJ is what comes next. God forbid Abe replaces Kuroda with another ex MOF clown or even worse somebody from the private sector.

Kuroda feels Japan cannot afford to delay tax hikes and spending cuts given its dire fiscal state

Kuroda as the BOJ chief will want to stop buying bonds at some point without causing long term interest rates to spike, but with the government dumping circa 40 trillion yen of new bonds on the market each year as it is now, that would seem to require some kind of miracle.

while Abe prefers to focus more on boosting growth to raise tax revenues.

Abe hasn't had much focus on that at all, so far. It's been all just money printing, inefficient spending, and cracking up Japan's military again. 3rd arrow structural reforms have been few and far between, with the "full 3rd arrow plan" always coming "next summer".

None of this is about to boost tax revenues by the 40 trillion yen needed to balance the budget (inclusive of debt servicing costs).

His favorite idea, floated at the panel, is to add a goal on the ratio of debt to GDP. This ratio falls without deep spending cuts, as long as the BOJ maintains both low interest rates and solid economic growth with its massive stimulus.

The 40 trillion yen budget deficit (inclusive of debt servicing costs) is some 8% of GDP. Unless GDP grows by more than 8% per annum, how would that work to reduce the ratio of debt to GDP?

“The BOJ’s stimulus is crucial in keeping borrowing costs low, which is a prerequisite for fiscal reform to proceed,” one government official said

That's nonsense. If rates go higher, that'd put pressure on the government to get its act together. That's how it works in a normal country. Rates go up, people with floating mortgages hate it, kick the politicians out, therefore the politicians do something about it to save their backsides.

Artifically low rates conversely take all the pressure off, and just look where delaying reality like this has gotten Japan's finances.

Whole point of printing money and keeping rates super low is to monetise the debt and thereby reduce the difficulty of paying it back. Unfortunately it is not working as well as hoped.

"The issues start when everyone (bondholders) starts wondering how they will get the money back."

Why haven't they already started "wondering" about that, given the huge size of the debt? And if they did start "wondering" about that, then why did they chose to buy the bonds in the first place?

"....it has experienced no economic growth. This is mainly due to the large amounts of debt."

Have you got any evidence that the debt has been a drag on growth?

@Jefflee, because once you know who is buying the debt... QED. Or is that just QE?

So, in the past two years, the only things Abenomics has achieved are increased sales tax, reduced corporate tax and changed the labor laws to make it easier to fire people. There has been no change in anything except that, Naoki Average is supporting big business by paying higher taxes and having less rights in the workplace. Unemployment is increasing, despite government figures, salaries have stagnated and decreased, spending has decreased by more than the sales tax increase. The national debt is still growing and the pension system is in complete fail. Move over Hreece and Spain because Japan will be joining you in the next three or four years.

Shouldn't the headline read "Abe-Kuroda honeymoon soured by fiscal fiction"?

Move over Hreece and Spain because Japan will be joining you in the next three or four years.

Thankfully this will not happen as the debt that Japan is carrying is held for the most part by the Japanese people themselves, unlike Spain or Greece, whose debt is held internationally.

Japanese debt is unique in that it is covered by savings of the people themselves, and it's the people (citizens) who need to wake up an realize that THEIR money is being used to prop up the country.

So here are the guys who invented QE some 10-15years ago. Maybe the most influential innovation coming out of JP for a long time.

"Japanese debt is unique in that it is covered by savings of the people themselves, and it's the people (citizens) who need to wake up an realize that THEIR money is being used to prop up the country"

Well, partially correct. It's not unique: a number of other currency issuing countries do the same. None are in danger of default, barring stupid politicians who don't understand how public finance works and attempt a "sequester"-type mutiny.

As for the "citizens," where did their yen originate from in the first place?

@JandWorld: The US Federal Reserve used a form of quantitative easing in the 1930s and 1940s to fight the Great Depression.

@JeffLee, no, at 250-ish% of GDP, Japan's debt --owned largely by its people-- is unprecedented in size, depth, scope and uniqueness.

Idea:

Switch to corporate payer system http://m.youtube.com/watch?v=AQV_aHLN0vU switch to corporate ratio-pay tax from current corporate income tax, and start paying off debt with current personal income tax as the Corporations (or associations of smaller companies) would be paying the other social benefits.

“The honeymoon days are over,” said Izuru Kato, chief economist at Totan Research. “Kuroda must be frustrated over a lack of progress in structural reform and fiscal consolidation.”

Apparently Kuroda has come to the same conclusion lots of posters here did many months ago -- that "Abenomics" was just good old-fashioned LDP-led pork-barrel spending wrapped in a new, sexy name that the hand-fed press could eat up. And there was no way the party of special interests could possibly take on those same special interests to make any meaningful reform. Or did he not learn the lesson of Koizumi and what happened to his reforms of Japan Post as soon as he left office?

I wish I had the knowledge those others commenters have here. The way I see this Japroeconomics is a card came with other people’s money – Japanese in this case. In this game another QE spender - the player’s hope they will not be around to see the end of the game, they will be out, taking their cash and run long before the public get to vote them out. "The house" or the Japanese population is shrinking and ageing, so less people to be paid back more. The young don’t care or understand the seriousness; the old are bought off or set up until death. The BOJ is printing for the banks which are buying Bonds to secure a leverage position to supply borrowers, who are making share/stock purchases? The markets are climbing but Japans production or output seems not to be. Japanese companies are spending borrowed /leveraged cash on overseas asset purchases, because they know there is no prospect of growth in Japan. There will be no return to the government as those taxes are paid before they return to Japan, if and when it dose come back. Meanwhile Japans pension fund is shifting assets and further pumping the stock market. China is slowing to normal growth and there are no real players behind (thankfully for the environment). India seems stuck in democratic venality and bureaucratic lethargy, Indonesia is as divided as its geography and its people struggle for education and an out let utilize. The world awaits if Joko and Moudi can avoid or will relate their forbear’s contraventions. As Lee pass into legend his actions could not be repeated in this time of twits and posts. The third arrow is misdirection, Mr. Abe can’t get the wages up for the bulk of the population even with repeated requests and tax breaks, the lowest paid, who would be the feeders for the consumption tax feedback and economic growth and are still paid next to nothing. While everyone is at the table credit flows everything is good, just as long as no one leaving the game goes on.

@WildWest: On a finite planet, the model is doomed to failure anyway. Just a matter of time, we either change or plunge into darkness.

Abe and the LDP are all about spending money like a drunken sailor: they will never be able to control themselves. If the half-wit Kuroda thinks otherwise he is even more of an idiot.

Seems Kuroda is the one who's full steam ahead with the current plan, and it's Abe who's delaying.