Pivot to pre-COVID normalcy tests Japan's fiscal spending appetite
Ideas:
Many governments always say they are going to reduce spending as a way to reduce their bloated budget, but something always gets the way with emergency programs, or other new emergency situations, and so it never really happens.
And don't expect the Bank of Japan to make any real changes to its currents policy anytime soon as they might make small incremental changes here or there, but nothing significant in the near future.
Companies might, again, increase wages in April of 2024 as in April of 2023, but the challenge will be if small and midsize companies can afford to increase wages.
Whether the Japanese economy moves past the deflation stage all depends on wage increases, consumer demand and consumer spending, and not so much on companies passing-on their material costs.
Current Prime Minister Kishida, might try to depart from the Abe policies, but its going to be hard to change much within the LDP as they control everything. And to be fair, its not known just how much the Japanese Prime Minster can change much, as they need a consensus to change policies.
The Japanese cabinet and the Japanese Prime Minister have never had complete support of the Japanese public, as it seems to the Japanese public is/was resigned to anything changing despite their lack of support for any current cabinet or prime minister.
As far as the US economy goes, the US seems to have move out of its recession worries and the inflation in the US economy is almost back to normal and the US economy, at this time, again, is the strongest economy in the world.
Its normal for societies to get used to the massive support, whether related to the covid situation or any other situation, and many times, it takes a while for society to get back to normal without relying on massive aid programs.
Prime Minister Kishida, like many politicians change when they get into office and have to deal with all of the challenges an economy faces. He might have been a fiscal hawk, meaning, he didn't like a lot of government spending, but again the needs of society change many politicians.
Many times, in government, people around the president or in this case the Prime Minister don't want to rock the boat and wont suggest any changes against what the Prime Minister wants.
The new 2024 might be the first time in 12 years it has decreased, and might be the second-largest on record, but by the end of fiscal 2024, it might increase a lot more as more spending programs are added, as new emergency situations occur.
For debt-servicing, most likely, as usual, the Bank of Japan will offer and buy more government bonds to cover the costs of the current bond situation.
The Japanese economy, to get out of deflation stage, needs to have an increase in consumer spending, and increase in consumer demand, and a significant increase in wage growth, and not just from large companies but small and midsize companies too.
The BOJ's policy tweak might be a move to help increase the above economic conditions, but maybe they its too much as 1.9 percent, at this time.
Again, even though the Japanese government and the Bank of Japan want to lower the debt, most likely its not going to happen just yet, as there are too many variables that need to be in place yet, before the debt can be reduced.
Government plans never really stay the same, so no matter what the plan is for the future, there are always going to emergency situations that come up that derail budget plans and government spending always increases.
The a long time, decades, the Japanese government depended on the US military and the treaties protecting Japan. But this is a era, with China becoming more of a threat every years and maybe Japan feels it needs to increase it defense spending as a way to deter China.
Tan hikes or sales tax increases are not very popular with the Japanese public as was seen in 2014 and 2019, with a 5 percent increase to 8 percent and a then to 10 percent in 2019.
The time might come with again, the Japanese government feels it needs to increase the sales tax, especially if it can get out of the deflation stage its in now.
Child care and other family support measures are good and needed in the Japanese economy, but until the basic structure of work changes, the current birth rate is not going to increase.
For example, more working women need to feel they can move past the clerical level in companies and into management levels, and that doesn't seem to be happening anytime soon.
The Northern European countries, and many European countries are good examples of society support, but Japan needs to get the fundamentals correct such more women in management positions, more women in the upper levels of government.
You can talk all you want about trying to balance the budget but its not going to happen anytime soon as an increase in defense spending and the extra budget related to a tax cut for the public along with a subsidy for lower-income groups will increase the current debt situation.
There is always concern with the Japanese debt situation, as its the highest among developed countries, but most of the debt, if not all, is owned by those in Japan, as compared to 2010 in the Greece situation, where most of the debt was external or owned by those not in Greece.
The Japanese economy is a very stable economy, and in the near term, is not going to go bankrupt as most of the crediting agencies continue to give the Japanese government high ratings.
The challenge, as always it the future and especially for those on social security or pensions, as to whether the Japanese government will need to reduce pensions like Greece did in 2010 to reduce its debt.
Even though the US key rate and the Japanese key rate are far apart, that might change soon as the US has indicated it will reduce its key rate a few times in 2024, which will lower the difference between the US and Japanese key rate.
The weak yen has definitely decreased Japan's economic power, and it might not change too much anytime soon, other than maybe a shift between the US rate and the Japanese key rate.
The Bank of Japan might not change much, if anything in 2024, as future article after this article suggests that the Japanese economy has entered into another recession with two quarters of a textbook style recession.
As are result, the Bank of Japan, again, most likely is going to keep its current policy unchanged until it can see some real positive changes in the Japanese economy such significant wages increases, an increase in consumer demand and a significant increase consumer spending.
Have a nice day and be safe!
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