After days of persistent speculation, Japan’s Prime Minister, Shinzo Abe, has confirmed that he will be calling snap parliamentary elections for next month in an effort to push back a scheduled tax increase.
Rumours had been building in recent days that Abe was preparing to dissolve parliament as he sought a new mandate to delay a second increase in consumption taxes, due next October.
The country, which only recently slipped into a recession, will have the lower house of its parliament dissolved on Friday in preparation for the snap elections. Abe also announced that the controversial sales tax hike will be delayed by at least 18 months, a decision he referred to as “grave”.
Japan’s GDP shrank by an annualised 1.6% in the three months till September – a result much worse than the 2.2% expansion expected by economists.
On a quarterly basis, Japan’s GDP declined by 0.4% as business investment slipped. Economies are commonly described as being in a technical recession after two straight quarterly contractions.
Japan, the third largest economy, has more government debt that any other nation, a top concern for supporters of the tax rise. Critics say Tokyo must find ways to generate solid growth before turning to fiscal matters.
The election is unlikely to radically change the balance of political power in Japan, where ruling LDP enjoys a support rate of around 37%. Nearest challenger, DPJ, on the hand, enjoys a support rate of only 8%. Analysts said the turnout will probably be low, and opposition parties seem in no state to mount a serious challenge over the 26 calendar days until the election – which resets the clock on Japan’s four-year cycle – on 14 December.
Photographer: Ma Ping/Pool via Bloomberg
A rise in consumer taxes in April has translated into Japan falling into recession, according to reports by the Financial Times.
Data for the quarter between July and September is showing that performance during the period was considerably worse than expected. Expectations of a 2.2% growth were shattered, seeing a 1.6% contraction instead.
As a result, it is now almost a certainty that Prime Minister Shinzo Abe will postpone any plans for further increases while appealing for a fresh mandate via a snap election.
The biggest contributor to this decline was the huge cut in firms’ inventories. On its own, this saw 0.6% shaved off of the headline gross domestic product figure. Had there been no change in the inventories, there would have been quarter-on-quarter growth of 0.2%.
Looking at data on household consumption and capital spending, it is clear that the tax-increase in April, from 5% to 8% have taken a toll. Since that implementation, Japan’s recovery has been “very, very slow”, said Kazuhiko Ogata, chief economist at Credit Agricole in Tokyo.
The latest declines come after a contraction of 7.3%, meaning that Japan is now back in a technical recession. This is the fourth since the Lehman crisis.
What a lot of people don’t realise is that the Bank of Japan Governor Kuruda has already placed huge amount of liquidity into the market place in anticipation of this . Looking forward I can see higher growth towards the end of the year , with the BOJ liquidity into the market place and also the Japanese Pension Fund divesting from JPY yen assets for more international asset we will see the effect of this at the end of this year .