Japan Economy News:

https://www.yahoo.com/finance/news/japan-economy-contracts-most-since-000627117.html

Article:

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Japan’s economy lurched toward a possible recession after taking another battering from a sales-tax hike in the last quarter that left it at a low ebb as the coronavirus outbreak hit activity at the start of 2020.

Japan’s gross domestic product shrank at an annualized pace of 6.3% from the previous quarter in the three months through December, the biggest slide since a previous tax increase in 2014, according to a preliminary estimate by the Cabinet Office Monday.

Comments:

It seems the past two weeks many news organizations are quick to say that Japan is headed toward a recession. Maybe yes and maybe no. Again take away the virus situation and you might possibly have just normal economic activity or more just normal business cycle activity meaning there are going to be some ups and downs as different sectors in an economy adjust and change.

Again, just like in Q2 in 2014, there was significant decrease in consumer activity. So this is no surprise as consumers are/were still trying to adjust to the increase sales tax. And in Q3 and Q4 in 2014, consumers did adjust and consumer spending went back to normal or almost normal before the April 2014 sales tax increase.

Article:

Economists surveyed had predicted a fall of 3.8%, flagging the adverse impact of the tax hike, weak global demand and typhoon disruption. The far worse-than-expected outcome showed that some of the government confidence in measures to cushion the blow of the tax hike was misplaced.

The result also raises the possibility that with the virus outbreak still spreading, Prime Minister Shinzo Abe may have to consider another round of extra spending to support growth, little more than two months after his most recent stimulus package.

“I’m getting ready for another contraction in Japan’s first quarter. There just aren’t any positive factors to build a positive growth forecast,” said Mari Iwashita, chief market economist at Daiwa Securities Co., flagging her view that the economy is likely falling into recession.

Iwashita expects the government to form another extra budget once it becomes clear the economy has stayed in a funk in the first quarter.

Japan Needs Fiscal Aid, not BOJ Help if Virus Hits Hard: Hamada

Comments:

Yes, the tripe affect of the tax increase, the typhoons and the decreased global demand has not helped the Japanese economy. And many times the government, any government will try to find a positive and or try to find ways to show some positives. That's not necessarily trying to trick anyone as they are looking for measures that might be positive despite the possible negatives.

All things being equal, take away the typhoons and the virus situation, most the sales tax economic activity or the lack-there -of, and the decrease in global demand could quite possible be just normal expected economic activity in an economy.

The typhoons of course were unexpected as has been the virus situation. So to be a little positive here, just the sales tax and the expected decrease in global demand, probably is/was not going to push the Japanese economy into a recession. Maybe decrease 2019 Q4 of course and maybe a decrease in 2020 Q1, but not enough for a recession.

But, and this is a big possibility, the virus situation, just might push the economy into a recession type situation,  if added into the mix and if it continues.

Should the government seriously consider another fiscal injection? Most likely if the Q1 results are headed in that direction.

Article:

The Abe administration and the Bank of Japan had expected a smaller impact from the tax hike compared with the experience in 2014, when it buckled the economy by more than 7%. The tax increase this time was smaller, foods were exempted and the government deployed a raft of counter measures aimed at smoothing out fluctuations in demand.

But economists said some of the government steps, such as rebates on spending via cashless transactions, had limited impact as they didn’t appeal to an older segment of the population not used to mobile phone payment platforms. The figures laid bare the vulnerability of domestic consumption to sales tax hikes, according to Takashi Shiono, an economist at Credit Suisse Group AG.

The latest data showed private consumption plunged by an annualized 11% in the quarter, as households slashed their purchases of cars, cosmetics and domestic appliances. In 2014 the hit was 18%.

Businesses also scaled back investment by 14%, preferring to wait for signs of a recovery from the tax shock before committing to further spending.

Comments:

All of the government measures and incentives were very good. However, and a big however, Japan still has a large segment of its population that might not use cards or even mobile phone payment platforms. As such they lost out on shopping/buying incentives, meaning they lost out on bargains and campaigns, and sales that focused on those platforms. Its possible the government needs to realize not everyone want to use mobile phone platforms and cards and cash are still the preferred way to purchase for them. Not all of society want to move into the 4th industrial revolution or even know how to. As such the government and businesses need to be able to accommodate those consumer too besides the trendy consumers who only want to mobile platforms.

The decrease in business investment is nothing new, as they take a wait and see approach to what is going happen in the future and try to figure out what is going to happen in the future. Now of course the virus situation is another variable that is in play that to be considered for now and the future.

Article:

While the initial trade deal between the U.S. and China should have offered a tail wind for investment this quarter, the unexpected virus outbreak may instead amplify caution in the boardrooms of Japan Inc.

“Concern over the virus is only intensifying and the mood of self-restraint is going to spread more broadly. I’m becoming downbeat on Japan’s economy,” Shiono said.

The virus has already stopped the visits of hundreds of thousands of Chinese tourists to Japan at the beginning of Japan’s Olympic year, hitting an important source of spending revenue. The longer the outbreak disrupts production and domestic demand in Japan’s biggest trading partner, the more likely Japan’s exporters will suffer and parts supplies may dry up.

Japan Recession Risks Prompt Forecasts of 2020 Contraction.

Comments:

Yes the improved trade conditions between China and the US should have helped Japanese trade and exports but with all things considered, it obviously wasn't enough.

Businesses are always cautious and even more so than 20 years or so ago, and as such any new negative seems to multiply or increase negative business investment sentiment. The sales tax situation, was at most always a very temporary situation.

But virus situation is on a completely different level and it could have global implications beyond just supply chains between Japan and China.

The is really the "virus new normal" meaning the global economy and Japanese economy need to find ways to adjust to this new normal.

Article:

Government officials stuck to their line that the tax impact on the economy was smaller this time than in 2014, but hinted that more spending could be in the pipeline if a slump looked certain.

“We will keep paying careful attention to the virus’s effect on tourism and the wider economy,” said economy minister Yasutoshi Nishimura in a statement. “According to the level of emergency, we will take necessary steps as needed in a flexible manner, and respond fully.”

Abe unveiled initial measures to counter the impact of the coronavirus last week, but so soon after releasing his economic package in December, he is likely to want to see harder evidence of a recession before mulling another large spending spree. Speaking in parliament on Monday he said the government would keep a close watch on the economic mpact of the sales tax and the virus.

Comments:

Yes, the sales tax situation and consumer spending should not be considered the main issue now. The virus situation has greatly over shadowed any affect the sales tax had on temporary decreased consumer spending.

All of the news now, at least it seems like it, is the Yokohama cruise ship situation and the impact of the virus on the Japanese economy, not the least the health and welfare of the Japanese citizens in the country.

© 2020, Tom Metts, all rights reserved