Japan Lower House election - Dec 14, 2014

[Simfan34]

Obviously there is something I don't know, because I would think now is not the best time for the LDP to be holding a snap election. What would that be?

[Simfan34]

I suppose Abe is running against the tax here?

[Simfan34]

Of course the real agenda is to try to get a mandate before Abe has to make hard decisions which could be unpopular.   Like restarting the nuclear power plants (I was in Japan back in Aug 2014 and they have a real power issue) or an reinterpretation of the constitution to allow for the use of the Japanese military for collective defense.

Well then good luck to him.

I saw a link saying that Japanese companies were still hoarding cash even with higher inflation rates :/

The Japanese sector is very skeptical and risk averse given so many false starts at reform.  Hording cash reflects this concern is really an example of Ricardian equivalence as it will act to negate the stimulus efforts of Japanese officials.  These elections will be seen as another trick will make the Japanese private sector even more skeptical and risk averse.  They pretty much think at some time in the future it will be time to pay the piper with massive tax increase, mostly on capital to sort out this current fiscal and economic imbalance.  Why invest in capital when it will get taxed massively in the future.  So the solution is to horde cash.

This is a self defeating-policy though, isn't it? By failing to invest the economy only stagnates further, expanding the imbalance and making it more likely that they government will levy confiscatory taxes to get to the money and spend it; I'm not sure what sort of policy there is to correct that beyond openly threatening to tax uninvested capital stock if individuals continue sitting on it.Some sort of wealth tax on assets held in savings accounts?Of course if the Japanese are as risk averse as they seem to be this could just backfire and they'd just put the money under their beds, so to speak.

That, and I don't know enough to say if there really is this hoarded cash the people are sitting in that could get them out of this mess- some people seem to think that's not the case; the Japanese are getting older and are drawing on their savings more argues one economist, which seems logical to me. It does seem all too simple- if only the Japanese would have more children and would invest more of their money, their economy would fix itself.

[Simfan34]

According to the World Bank, gross savings have fallen from 33% in 1989 to 19% in 2012; if this chart on Google (of WB data) is accurate then Japan has fallen below virtually all of the other economies in the region. They'd be an above-average Western European nation, but that's hardly comforting.

I can't easily find data on the past two years, but if their household savings rate is any indicator of the general trajectory things have not been getting better. This would suggest that there is less room for any kind of policy to "mobilise savings" to have a significant effect.

Even more alarming is that the gap between GDP and potential GDP was -1.165 % in 2013, compared to an OECD average of -3.051 %. According this paper review, GDP will exceed potential GDP by 2015. Things do seem to point to Japan hitting constraints rather than it underperforming; there would need to be (either way, but in this case far more crucially) major macro-structural reforms if things are to change.

The most obvious thing would be boosting birth rates by all means possible, but increasing per-capita output is a necessity; increasing the participation of women in the workforce, restarting nuclear power plants, and a whole other host of strategies are going to be needed, and to his credit Abe has been doing that.

But the issue of declining innovation (as evidenced by the declining market share of Japanese firms) is going to have to be addressed, and the shinsotsu culture ought to be target No. 1, but I don't know how much, if anything, Abe's done in that regard. The Koreans have done quite a bit to eradicate their version of it, and I'd say the chaebols are more influential there than the keiretsu are in Japan, so it should be possible (in theory).