Japan’s 3Q GDP figures catalyst for snap polls
TOKYO: A set of economic data due in Japan today looks likely to determine the fate of ‘Abenomics’, with anticipation a poor showing from third quarter gross domestic product (GDP) figures will prompt a general election.
Unless the July to September GDP figures show an unexpected rally, today’s release is likely to provide the catalyst for Prime Minister Shinzo Abe to rule out a promised consumption tax rise and seek a new popular mandate, two years ahead of schedule.
The tax rises are aimed at paying down Japan’s enormous national debt, but they have put Abe in a tricky position as he tries to balance them with his prospending growth plan – dubbed Abenomics.
The market’s median forecast is for a 2.47 per cent annualised growth rate, according to a survey of some 40 economists conducted by the Japan Center for Economic Research.
That would sidestep a technical recession, after Japan’s GDP shrank an annualised 7.1 per cent in the second quarter, but it pales next to the ringing endorsement that came in during the first three months of the year, when the economy grew six per cent.
Sincehislate2012election,Abe’s
Because it will take time for the Japanese economy to pick up in a sustainable way, general elections later on would risk his chance of being re-elected as the ruling party leader in September next year. It’s better for Mr Abe to call snap elections sooner rather than later in order to minimise the number of parliamentary seats that he will lose. Sadafumi Kawato,Tokyo University politics professor
plan to conquer years of deflation that have held back growth in the once world-beating economy had been bearing fruit.
But those efforts stumbled as consumers closed their wallets – and nervous firms capped their own spending – after sales taxes rose to eight per cent from five per cent on April 1.
While most commentators said a dip in spending was inevitable after the rise – shoppers had front-loaded ahead of the increase – the second-quarter contraction was much more painful than many economists had expected.
Fearsaboundthatthescheduled second hike – written into law and due to take effect in October 2015 – could snuff that recovery out altogether, and hurt Abe politically.
“Because it will take time for the Japanese economy to pick up in a sustainable way, general elections later on would risk his chance of being re-elected as the ruling party leader in September next year,” said Tokyo University politics professor Sadafumi Kawato.
“It’s better for Mr Abe to call snap elections sooner rather than later in order to minimise the number of parliamentary seats that he will lose.”
Major Japanese media have reported that Abe will announce a snap election at a press conference on Tuesday, possibly for December 14.
Advocates say part two of the rise must go ahead if Japan is to maintain the confidence of the markets and not risk the punishing interest rates seen in the heavily indebted countries of the eurozone.
On Friday, the government’s top spokesman refused to end the speculation.
“I’m not going to comment on hypothetical questions, but our basic policy is that exiting from def lation and the revival of Japan’s economy are our first priority,” Chief Cabinet Secretary Yoshihide Suga told a regular press briefing.
“At the same time, we are a government chasing two hares – we’re not an irresponsible administration,” he said referring to the nation’s large debt burden.
Economists said a recovery in spending will be among the most crucial readings in the data, but they are divided on whether Tokyo should raise the levy on everyday goods.
“The second tax hike is likely to bepostponedunlessthedatashows a high growth rate, something like an annualised rate of four to five per cent,” Credit Suisse analyst Hiromichi Shirakawa said in a research note.
Hajime Takata, chief economist at Mizuho Research Institute, said the tax plan was a must, and added that “we shouldn’t be too obsessed with the July-September GDP data”.
“Rather, it’s better to take a longer-term view on how the economy has been doing over the past two years,” he added.
“The economy seems to be on track for a sustainable recovery, but the current situation is still as if it has caught a cold: it needs medicine–threedrugscomprising monetary easing, fiscal stimulus and a growth strategy (structural reforms).”
Abe has been under increasing pressure to make good on plans to shake up Japan’s highly regulated economy.
While he has made some progress, such as trying to cut farm subsidies and deregulating the electricity sector, his ambitious plans have put him on a collision course with the politically powerful agricultural lobby, among others.
One of Abe’s economic policy advisors, Koichi Hamada, who opposed the April tax hike, has called for the second increase to be deferred.
“The tax hike should be delayed by half a year, or even one year, if the July-September GDP figures turnsouttobeweak,”theprofessor emeritus at Yale University said in a Japanese magazine interview this month.
“Japan’s potential growth rate has already fallen significantly due to the impact of the April tax hike.
“If demand is hit by another rise, the economy would face the risk of decelerating growth,” he added. — AFP