This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.nytimes.com/2014/11/21/world/asia/japans-economic-woes-cast-new-doubt-on-abenomics.html
The article has changed 4 times. There is an RSS feed of changes available.
| Version 1 | Version 2 |
|---|---|
| With Bad Economic News, Abe’s Magic Seems to Evaporate | With Bad Economic News, Abe’s Magic Seems to Evaporate |
| (about 1 hour later) | |
| TOKYO — Is this the end of Abenomics? And if so, why did it fail? | TOKYO — Is this the end of Abenomics? And if so, why did it fail? |
| These are the questions being asked in a shellshocked Japan just days after government accountants announced that the economy, which most experts said they believed was rebounding, had fallen into a sharp recession. | These are the questions being asked in a shellshocked Japan just days after government accountants announced that the economy, which most experts said they believed was rebounding, had fallen into a sharp recession. |
| The answers, economists and political experts say, may turn on the difficulty that Japanese leaders have had in choosing between competing policy approaches: monetary stimulus and fiscal austerity. And that indecision reflects an intense debate about which aspect of Japan’s severe economic woes represents the greater problem: the downward spiral of deflation that stimulus proponents blame for causing two “lost decades” of stagnation, or the ballooning national debt that fiscal hawks worry could doom the nation’s future. | The answers, economists and political experts say, may turn on the difficulty that Japanese leaders have had in choosing between competing policy approaches: monetary stimulus and fiscal austerity. And that indecision reflects an intense debate about which aspect of Japan’s severe economic woes represents the greater problem: the downward spiral of deflation that stimulus proponents blame for causing two “lost decades” of stagnation, or the ballooning national debt that fiscal hawks worry could doom the nation’s future. |
| It also reflects a political tug of war, pitting the powerful Ministry of Finance and its demands for budgetary discipline against Prime Minister Shinzo Abe and others who favor government spending and aggressive monetary policies to stimulate growth. | It also reflects a political tug of war, pitting the powerful Ministry of Finance and its demands for budgetary discipline against Prime Minister Shinzo Abe and others who favor government spending and aggressive monetary policies to stimulate growth. |
| It was in an attempt earlier this year to balance these conflicting impulses that Mr. Abe allowed a planned increase in the national sales tax to go through despite warnings that it could snuff out the fragile recovery he had fostered. Now that those warnings appear to have proved true, Mr. Abe is even more committed to the stimulus approach, postponing a second tax increase and calling a snap election to win renewed support for his growth strategy. | It was in an attempt earlier this year to balance these conflicting impulses that Mr. Abe allowed a planned increase in the national sales tax to go through despite warnings that it could snuff out the fragile recovery he had fostered. Now that those warnings appear to have proved true, Mr. Abe is even more committed to the stimulus approach, postponing a second tax increase and calling a snap election to win renewed support for his growth strategy. |
| But there is a third view, that neither a balanced budget nor a major stimulus alone will be enough to produce a lasting recovery. What are needed, proponents of this view argue, are painful, market-opening reforms that Mr. Abe has thus far failed to produce. Abenomics, they say, has so far amounted to little more than a short-term supercharging of the economy. | |
| “Abenomics has just been a mixed bag of tricks so far,” said Takao Komine, a specialist on economic policy at Hosei University in Tokyo. “Its success or failure will depend on whether Prime Minister Abe can deliver on the long-term structural changes.” | “Abenomics has just been a mixed bag of tricks so far,” said Takao Komine, a specialist on economic policy at Hosei University in Tokyo. “Its success or failure will depend on whether Prime Minister Abe can deliver on the long-term structural changes.” |
| Just a few weeks ago, Abenomics was still winning accolades as a rare success story among developed nations, many of which seemed to have caught the same disease of low to no growth and corrosive price declines known as deflation. When Mr. Abe took office two years ago, he pressured the central bank into making a drastic push to reinflate the economy by pumping it full of cash, which he backed up with huge government stimulus spending. Japan’s stock market soared as the moves seemed to work a miracle, transforming the economy into one of the world’s most robust growth stories. | Just a few weeks ago, Abenomics was still winning accolades as a rare success story among developed nations, many of which seemed to have caught the same disease of low to no growth and corrosive price declines known as deflation. When Mr. Abe took office two years ago, he pressured the central bank into making a drastic push to reinflate the economy by pumping it full of cash, which he backed up with huge government stimulus spending. Japan’s stock market soared as the moves seemed to work a miracle, transforming the economy into one of the world’s most robust growth stories. |
| Then, seemingly overnight, Mr. Abe’s magic seemed to evaporate. The mortal blow came on Monday, when government figures showed that the world’s third-largest economy shrank by a steep 1.6 percent in the three months ending in September. It was the second straight quarter of economic contraction, the definition of a recession. Mr. Abe, who enjoyed high approval ratings just a few weeks ago, suddenly looked desperate, appearing live on national television to plead for his economic program. | |
| Most economists agree that the immediate cause was the increase on April 1 of the sales tax to 8 percent from 5 percent, which prompted a tightening of consumer spending that rippled through the $5 trillion economy. | Most economists agree that the immediate cause was the increase on April 1 of the sales tax to 8 percent from 5 percent, which prompted a tightening of consumer spending that rippled through the $5 trillion economy. |
| Koichi Hamada, a former professor of economics at Yale University who has been an architect of Mr. Abe’s revival policies, said the tax increase was never part of Abenomics. Rather, he said, it was a legacy from the previous administration, which passed a law mandating that it be put in effect this year. He said fiscal hawks within Mr. Abe’s own governing Liberal Democratic Party had urged the prime minister to let it take effect as scheduled to help tame Japan’s ballooning national debt, which has grown to the equivalent of more than two years of economic output and is already the largest in the developed world. | |
| The real force behind the tax increase, he and others said, was the Ministry of Finance, the strongest of Japan’s powerful central ministries and an advocate of balanced budgets. As Japan’s deficits have spiraled upward during its long economic downturn, the ministry has pushed for increasing the national sales tax as the best way to raise new revenue. | The real force behind the tax increase, he and others said, was the Ministry of Finance, the strongest of Japan’s powerful central ministries and an advocate of balanced budgets. As Japan’s deficits have spiraled upward during its long economic downturn, the ministry has pushed for increasing the national sales tax as the best way to raise new revenue. |
| Mr. Hamada and others said the ministry scared the Abe government into going through with the tax increase by arguing that any delay in the tax would make Japan look fiscally irresponsible and cause a stock market crash. Fiscal hawks like those at the ministry fear that a failure to address Japan’s national debt could lead to a crisis of confidence in which Japan can no longer sell its bonds. | Mr. Hamada and others said the ministry scared the Abe government into going through with the tax increase by arguing that any delay in the tax would make Japan look fiscally irresponsible and cause a stock market crash. Fiscal hawks like those at the ministry fear that a failure to address Japan’s national debt could lead to a crisis of confidence in which Japan can no longer sell its bonds. |
| But on Tuesday, Mr. Abe defied the fiscal hawks and postponed the second tax increase until 2017. Investors applauded his renewed focus on growth, sending stocks rebounding after the biggest one-day drop in six months on Monday. “The Ministry of Finance is a tough and powerful opponent, but Abe has the guts to fight back,” Mr. Hamada said. | But on Tuesday, Mr. Abe defied the fiscal hawks and postponed the second tax increase until 2017. Investors applauded his renewed focus on growth, sending stocks rebounding after the biggest one-day drop in six months on Monday. “The Ministry of Finance is a tough and powerful opponent, but Abe has the guts to fight back,” Mr. Hamada said. |
| Some analysts described the snap election as an attempt to curtail the ministry’s influence. By making the tax increase the election’s top issue, Mr. Abe is forcing the ministry’s supporters within his own party to fall in line behind him. “Calling the election is a calculated move by Abe to silence his opponents,” said Mr. Komine, the economist from Hosei University. | Some analysts described the snap election as an attempt to curtail the ministry’s influence. By making the tax increase the election’s top issue, Mr. Abe is forcing the ministry’s supporters within his own party to fall in line behind him. “Calling the election is a calculated move by Abe to silence his opponents,” said Mr. Komine, the economist from Hosei University. |
| Mr. Hamada expressed optimism that the recession was just a temporary setback, and that the central bank’s decision late last month to pump even more cash into the economy would bring back growth. “The rocket has faltered, but it won’t crash,” he said. “Abenomics is still the right policy for Japan.” | Mr. Hamada expressed optimism that the recession was just a temporary setback, and that the central bank’s decision late last month to pump even more cash into the economy would bring back growth. “The rocket has faltered, but it won’t crash,” he said. “Abenomics is still the right policy for Japan.” |
| Other experts are not so sanguine, pointing out that the tax increase was relatively small given the size of the economy. It was a sign of the underlying weakness of Abenomics that it caused such damage, they said. | Other experts are not so sanguine, pointing out that the tax increase was relatively small given the size of the economy. It was a sign of the underlying weakness of Abenomics that it caused such damage, they said. |
| In particular, these critics argue that Mr. Abe has failed to deliver on promises to nurture entrepreneurship and new industries, and has proved unwilling or unable to challenge the central bureaucrats and vested interests in Japan that are resisting market-opening reforms. The farm lobby, for example, has blocked a trans-Pacific trade deal meant to showcase Mr. Abe’s more competitive Japan. | In particular, these critics argue that Mr. Abe has failed to deliver on promises to nurture entrepreneurship and new industries, and has proved unwilling or unable to challenge the central bureaucrats and vested interests in Japan that are resisting market-opening reforms. The farm lobby, for example, has blocked a trans-Pacific trade deal meant to showcase Mr. Abe’s more competitive Japan. |
| Mr. Abe’s policies have also failed to stop sliding wages. The average income of working households fell in September for a 14th consecutive month. The stimulus and tax increase may have exacerbated the problem. The central bank’s very success in curtailing deflation drove prices higher for the first time in nearly two decades. But because wages did not climb, and the sales tax pushed prices up further, most Japanese felt poorer. | |
| “I’d say it’s time to call Abenomics a failure,” said Jeff Kingston, a professor of politics at Temple University’s campus in Tokyo. “The recession means Abe has failed to deliver on growth, and he has whiffed the structural reforms. All that is left is disappointment.” | “I’d say it’s time to call Abenomics a failure,” said Jeff Kingston, a professor of politics at Temple University’s campus in Tokyo. “The recession means Abe has failed to deliver on growth, and he has whiffed the structural reforms. All that is left is disappointment.” |