Guest Post: Japan Edging Towards Sales Tax Hike by Imogen Reed

Life in Japan could be about to get more expensive.

Ichiro Ozawa

Prime Minister Yoshihiko Noda, in a move that could prove how little power a Prime Minister has, has urged Ichiro Ozawa to back his plan to double the sales tax rate. If this comes to pass, it will profoundly affect the ability of people living in Japan to purchase goods, but according to some analysts could save the Japanese economy from oblivion.

Sales Taxes

A sales tax is a government charge added to the value of any goods or services sold. This is different from a Value Added Tax (VAT) as it applies to all rather than just those deemed to be of high quality. Currently, in Japan, as anyone knows, products are subjected to a 5% charge on their value. While products are displayed at their value, without the sales tax included, everyone knows to add 5yen for every 100yen of value. This is why a 100 yen store like Daiso is really a 105 yen store. Well, Daiso is about to become a 110yen store.  A good example of this is fleet insurance. If such insurance normally costs 5,000yen per month, this would work out at 5,250yen including tax, but if sales tax is doubled, this would come to 5,500yen per month.

Hiroshige print

Implications for the People

Japan , along with countries like Norway and Britain, is already one of the most expensive countries in the world. It has, however, been boosted by a high manufacturing level, historically high wages (that are now on the slide) and high liquidity. The purchasing ability of a country’s population is called its purchasing power parity or PPP. This means that a select number of ordinary goods and services are bought in each country around the world and  the amount of money taken to get them is compared. In the International Monetary Fund’s latest PPP examination, Japan has fallen to fourth in the world rankings having been overtaken by India.

There are pros and cons to sales taxes. One of the biggest cons for a sales tax rise in Japan is that it is seen as regressive. This means that the added cost of a product or service hits ordinary people more as they can least afford changes to their budgets.  For many if not most Japanese people, a sense of identity and wealth is displayed through buying luxury goods such as designer handbags, clothes and other brands. By doubling the tax on each of these products, it makes it harder for ordinary people to aspire to these luxuries or even to afford normal products.

The Wider Economy

Japan is a consumer economy. This means that it thrives on the back of making and selling products. It makes cars, computers, game consoles, furniture, books and more delicious types of food than anyone can count. Brands like Apple and Louis Vuitton thrive in Japan unlike anywhere else in the world. It should be noted that these companies will have to make a decision when selling their products. Do they add the extra five yen per 100 to the value of the product and thus pass the cost onto the consumer? Or do they reduce the product’s value in order to absorb the tax and take a cut in profits?

Real GDP growth in Japan

According to Tim Byrne, senior vice-president and regional officer at Moody’s Investors Service, said that Japan needed to increase the sales tax in order to offset spiralling welfare costs and debts. While no one knows the true value of Japan’s debts, Byrne thinks it is time the Japanese government finally started to tackle its structural problems and debts.

“If you don’t increase taxes you’d have to issue more JGBs (Japanese Government Bonds) which moves the day of reckoning closer to the tipping point where markets demand higher risk premiums,” he said. Analysts have been waiting for the tipping point for some time as Japan has sleepwalked towards economic doom.

Nippon Keidanren, the Japanese Business Association, believes that by 2050 Japan will no longer warrant the tag of a developed economy and will suffer sustained negative growth from 2030 onwards. This report coincides with India’s rise above Japan in terms of PPP and China’s rise above Japan in terms of economic power. At the same time, Japan’s population has begun to decline year on year as birth-rates fall as the population ages.

It should be noted that the sales  tax is not the solution to all of Japan’s problems. In the past 20 years a myriad of books have been written on the subject. With Japan’s dwindling population and less job security in the nation, many poorer people are going to be consuming less in the coming years. It is possible that the sales tax will accelerate such a decline and must, therefore, be combined with other economic measures to get the economy back on track.

As for Ozawa, the veteran politician and Democratic Party of Japan (DPJ) powerbroker is due to be reinstated to the party after being suspended during his trial. Having been acquitted, he will now return to the party and his control over a number of followers. If Noda can convince Ozawa to tow the party line, he will be able to pass the sales tax hike over the heads of the opposition parties.     - Imogen Reed

Breaking! Ichiro Ozawa is Elected Japan's New Prime Minister on a "No Sales Tax Increase Platform"

Okay, that headline is a bit premature.... But mark my words... The groundwork is done. Ichiro Ozawa is about to become Japan's next prime minister. Today the guy won his court case and was "not guilty" in a scandal that has had people announce his political death over and over and over...


But, like a cockroach, darn if that guy just won't die!

Ozawa (left) Noda (right)... Seriously, which guy even looks like a winning politician scum? (Hint: It's the guy smirking - he chuckles at you!)

As I predicted in my post of April 23, 2012, "100% of Japanese Public Surveyed Against Sales Tax Increase - Noda is Toast":

Noda is out on his a*s by July. Mark my words.

Look for Ichiro Ozawa to be Japan's next prime minister. When that happens, all bets are off the table. (But it can't be any worse than what we have now!)

The news comes out today that Ozawa has been conveniently exonerated for wrong doing in a funding scandal that has dragged him down for years. This now sets the stage for his total and complete political reformation and fits him in nicely to be Japan's next prime minister. Japan Today reports in Ozawa found not guilty in fund scandal:

Former Democratic Party of Japan leader Ichiro Ozawa, one of the most powerful men in Japanese politics, was found not guilty Thursday of a major funding scandal, paving the way for a possible showdown with the ruling party leadership.

Ozawa, 69, was cleared by the Tokyo District Court of allegations he conspired with aides to hide 400 million yen he lent to his political funding body in 2004 for a land deal.

His aides had said the mistake was purely technical and their boss—who engineered the party’s 2009 election victory—had not been aware of it.

Prosecutors, who came unstuck over the use of illegal evidence, said it was “unthinkable” Ozawa had not been in the loop.

Major TV networks cleared their schedules to report the verdict, with a huge media presence at the court for a case that has gripped Japan’s political classes for years.

The timing is just too perfect. Talk about being resurrected from the dead just in time for elections (Nah! The courts wouldn't be politically motivated, would they? Nah!!! Couldn't be!!! Say it ain't so, Joe!) And isn't it, by the way, a requirement of Japan's office of the prime minister to be accused of some sort of scandal and money laundering hijinks?


Besides becoming Japan's next prime minister by July 2012 at the latest, I predict that Ozawa will be a prime minister who stays on office for at least three years and, in spite of his corrupt background as a politician (but I repeat myself) will be "better" than any of these clowns that we've had over the last 5 years.... (Actually how could anyone be worse?)


I also predict that he will have enough support to go back on his promises and actually raise sales tax.


Meet the new boss. Same as the old boss (just a lot more slick!) Ozawa the next Japanese prime minister by July 15, 2012.


I'd bet an entire case of donuts of that one.

Japanese Politics, Yen vs. Dollar and the Price of Gold

By Mike in Tokyo Rogers


Today's Bank of Japan (BOJ) intervention into the price of the Japanese yen versus the dollar now explains why Naoto Kan was kept on as president of the DPJ and will continue as Prime Minister of Japan: It was all a back-door deal. Wheeling and dealing as usual.


"Scratch my back and I'll scratch yours."


All this time Kan was reluctant to prop up the yen and then, suddenly, he wins the vote and the next day, his so-called "principles" are out the door and the BOJ jumps into yen intervention head-first for the first time in six-years (after it was proven it didn't work the first time).  Well, at least that explains why he was kept on.


My favorite economic blog in the world, Mish's Global Economic Trend Analysis, has an excellent
analysis on the idiocy of the BOJ intervening in the price of the Japanese Yen versus the US dollar.


Mish cynically writes of the Bank of Japan (BOJ) intervention:


It has been proven time and time again that currency intervention does not work. Yet, somehow it is "good for the government to show its strong stance". (Referring to foolish remarks by investment strategist Takao Hattori at Mitsubishi UFJ bank).


He also adds later in the same article:


If the Yen does drop in a sustained way, it will not be because of the intervention, but rather because the Yen had outrun fundamentals and was simply ready to drop.


Even though Japan had been complaining that a strong yen was hurting their exports, records show that Japan actually had strong exports in July 2010:


JOHN VAIL, CHIEF GLOBAL STRATEGIST, NIKKO ASSET MANAGEMENT

"Clearly the U.S. is not going to be too friendly towards it although they may not argue too much about it in that Japan is a big customer for its Treasury securities."

"I'm not sure we are going to see a major weakening of the macro statistics in Japan, but if we do that would obviously help weaken the yen, but exports were quite strong in July both on a nominal and real basis so it's a bit of a quandary for Japan."

"But the biggest problem for Japan is not the U.S. cross rates, it's the Korean won, and the Korean won has just been ridiculously weak. Yet G20 officials have yet to really pressure Korea on this at all, which I think is really to Japan's detriment."


I highly recommend reading Mish's entire blog on the subject as he is a much better expert on this than I, but I want to point out something here that is missed by most people as to what happened to the price of gold, in yen, immediately after this market intervention. And how government intervention - any government intervention - distorts the marketplace and creates problems for investors and business men alike.


Today, Sept 15, 2010, the opening price per gram of gold was ¥3426 per gram. This was before the BOJ intervention in the price of the yen versus the dollar.


This price was realized after strong gold gains in New York overnight where gold closed at $1268.70 on Sept. 14, 2010. This created the gold price of ¥3426 a gram as stated in the previous paragraph. At that time the yen was trading at ¥82.27 per dollar.


Then, at about 10:30 am Tokyo time, the BOJ intervened and the price of the yen dropped from ¥82.27 per dollar to nearly ¥85 per dollar. This caused the Nikkei 225 to soar.


It also caused the price of gold to jump too. 


In just a moment, the day's price of gold went from ¥3426 a gram to ¥3461 a gram... 


Now, most gold owners would celebrate at this information, but a closer look reveals that this is not all that great and that, even the supposed "experts" think that this intervention won't matter as market fundaments are what's driving the price of the yen.


As the NPR reported:

"The effect from Japan's solo intervention won't last very long. We have to see how the U.S. and European monetary authorities would react," said Yuji Kameoka, chief forex strategist at Daiwa Institute.

The intervention came a day after Prime Minister Naoto Kan held onto power after fending off a challenge from veteran lawmaker Ichiro Ozawa for the ruling party presidency. Ozawa had advocated currency intervention, but Kan had until now been reluctant to act.

So now, one again, things make perfect sense. Ozawa was willing to intervene in supporting the yen. Kan wasn't. Ozawa was a big money politician who had a dirty image; Kan wasn't... Ozawa played the sneaky back-door smoke-filled room deals; Kan was supposedly a "new face" and not a part of the "Good Old Boys" ....


But that's all gone now. 


Kan and his people got the votes they wanted by promising to prop up the yen... It's business as usual in Japan, folks.


The politicians in this country and even the Bank of Japan are not concerned about the well-being of the average Japanese person. They will do whatever they can to keep the Ponzi scheme going for as long as they can... The can has been kicked down the road once again....


A few months ago, Kan said he wouldn't prop up the yen because he was worried that, due to debt, Japan would become like Greece... But, here we are.


Thank God that these politicians look out for number one... Thank God they will do whatever it takes to get elected....


The Japanese people be damned.


PS: Normally I would be thrilled with a ¥81 a gram rise in the price of gold... But when it is due to price manipulation of currency... What should anyone be?


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Keywords: gold, Ponzi, Ichiro Ozawa, Kan, Mish, Marketing Japan

Ichiro Ozawa Becomes New Prime Minister of Japan

By Mike in Tokyo Rogers

Today Japan will choose a new Prime Minister. Will it be Naoto Kan or  Ichiro Ozawa? How is it possible that, after being so disgraced just a year ago, that Ozawa has a chance of becoming Prime Minister?

It's because Naoto Kan is so incredibly incompetent and inexperienced.

Well, I'm am not inside of these talks but I think I can tell you that Ozawa will be the next Prime Minister of Japan. Why? I gather this because of what I perceive the mood of the mass media and the public at large. Recently, I have been getting a definite negative vibe concerning Kan.

Probably the worst thing for Kan is the poor performance of the Japanese Stock Market recently coupled with the rise of the yen. Throw on top of that Kan's insistence on raising taxes and you have the formula for someone getting booted out really quick.

As the Financial Times reported:

The DPJ shift to policies that boosted consumption was the right move, and an electoral asset. Strange, then, that Mr Kan turned back, fighting this summer’s upper house election on an austerity platform. Child allowances were to be capped, consumption taxes doubled and corporate taxes cut instead. Unsurprisingly, Mr Kan’s proposal went down like a cup of cold rice gruel. Mr Ozawa was vocal in his disapproval. But why did Mr Kan reverse? The kindest explanation is naivety: he fell for the “Japan is the next Greece” story. By contrast, Mr Ozawa’s idea of securitising loans and other assets on the government’s bloated balance sheet sent shivers down the spines of bureaucrats, not to mention the bond market.


I doubt seriously that adding to Japan's balance sheet frightens Japanese politicians. If that were true, then they should have been very afraid when the red ink hit 100% of GDP way back when. Now that it's at 190%, what's the difference in a few extra trillion yen here or there? 


The Japanese government's purpose, like the purpose of all government's around the world, is to kick the can down the road and to allow someone else to have to worry about paying the piper....


Thus, as both Kan and Ozawa have Keynesian ideas for fixing the economy, I say that Ozawa's time has come. Kan foolishly says in public that he will raise taxes. Ozawa is against that. 


This means that other members of the DPJ worry about their seats in the next election. This will result in Ichiro Ozawa as the next Prime Minister of Japan....


After that, soon Ozawa will fail miserably too, and then, once and for all, the DPJ and Japan will finally be rid of him...


Too bad we can't get rid of the rest of them at the same time.


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Keywords: Ichiro Ozawa, Naoto Kan, election, DPJ

Japan's Dysfunctional Government is Best!

By Mike in Tokyo Rogers


Japanese people are very embarrassed by their government. I often hear people say ridiculous things to me like, "I wish we Japanese had a good government like you do in America" or, "Japanese politics is such a joke, all they ever do is care about themselves."

"Who voted for this Asoh?"

Laughable, isn't it? I mean, ow could anyone think the US government is "good" is well beyond my comprehension. I think, in some ways, the Japanese government is head and shoulders above the US government.


Take the recent news...


The newspapers read:


Japan Leadership Battle Kicks Off!


Japan's Prime Minister Naoto Kan and his rival, powerbroker Ichiro Ozawa, kicked off a leadership battle Wednesday that threatens to divide the ruling party only a year after it took power. Their contest to run the governing centre-left Democratic Party of Japan (DPJ) comes as its economic recovery is slowing, Japan's debt mountain is growing and exports are threatened by the yen trading near a 15-year high. The rivals, who both formally declared their candidacy for the September 14 party election, represent the two different wings of the party which a year ago ousted the conservatives after more than half as century in power. 


That's what the papers are all saying. To most Japanese people who care about this sort of thing, it is an embarrassment. It looks like Japan can't have a stable government. I mean, it is possible that, very soon, Japan will have their seventh prime minister in six years if things keep going at this rate. 


Seven prime ministers in six years? I think that's great. 


Why do I think that's good? Well, you see, in the USA we get some moron into the presidency and we are stuck with him for at least 4 years (usually 8). This allows that fool to do all sorts of stupid things like start wars, raise taxes, pass new and destructive laws... And we are stuck with it....


In Japan? Nope. We don't have that problem... When the prime minister's job is like a revolving door, with the prime minister changing every few months, then that's the best result we can possibly hope for short of abolishing the entire government.


Why? Well, if we are changing government constantly, then they cannot pass new laws nor can they raise our taxes. See? It's the best!


It's the most optimum outcome possible! So three cheers for the dysfunctional Japanese political system! Let's hope it spreads around the world and puts and end to tax increases and wars! 


Besides that, I have "10 prime ministers in 8 years" in the pool at work and I have my eye on that money!


Go dysfunctional government! Rah! Rah!





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Keywords:


prime minister, Naoto Kan, Ichiro Ozawa, Marketing Japan, Mike Rogers