Shinzo Abe to Resign

Abe, age 65, will resign because of an intestinal condition.  The ruling Liberal Democratic Party controls a majority in Parliament, which elects the prime minister so there will not be an election.

Who's On Deck?

The WSJ discusses the choices for Japan.

Defense Minister Shigeru Ishiba, who has criticized Mr. Abe for what he said were policies that favored wealthy people in cities, has ranked at the top of public-opinion polls about an Abe successor. Mr. Ishiba lost to Mr. Abe in 2012 and 2018 for leadership of the LDP.

However, Mr. Ishiba’s support is weaker among party heavyweights, who may prefer an Abe loyalist such as Chief Cabinet Secretary Yoshihide Suga. Mr. Suga has worked by Mr. Abe’s side during his entire second stint as prime minister and would be likely to continue his policies. Defense Minister Taro Kono, a fluent English speaker, and former Foreign Minister Fumio Kishida are also among the dozen or so names mentioned locally as contenders.

Abenomics

Abe had a two-pronged approach to the economy, provide stimulus while raising taxes. 

Raising taxes is counter-stimulative and each time Japan did its economy slid back in recession. 

Japanese Real GDP

Japanese Real GDP 2020 Q1

Japan announced a Tax hike in the 4th quarter of 2019 even though growth was flat in the third quarter.

Japan's national sales tax rose in 2014 to 8% from 5% and then to 10% on Oct. 1, 2019. After each tax hike, consumer spending took a beating.

Japan was in two quarters of recession before Covid hit.

Japan's Three Pronged Problem

  1. Ave wants more inflation even though consumers surely don't.
  2. Japan has the highest debt to GDP ratio in the developed world, 230%  at the end of 2019.
  3. Abe raised taxes twice to bring down the debt but each time recession hit.

Stimulus plus tax hikes is a proven failure. Heck, stimulus alone is a proven failure even without the tax hikes.

All Japan has to show for it is a mountain of debt with stagnant growth.

It remains to be seen what Japan's successor will do but I suspect tax hikes will not be part of the picture.

Mish

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