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LIST  December 2013

LIST December 2013

Subject:

Re: Wolf says Abenomics misdiagnoses the problem.

From:

Peter McGill <[log in to unmask]>

Reply-To:

NBR's Japan Forum <[log in to unmask]>

Date:

Wed, 18 Dec 2013 12:13:36 +0000

Content-Type:

text/plain

Parts/Attachments:

Parts/Attachments

text/plain (124 lines)

Lombard Street Research has been making the same point as Martin Wolf for
many months:

³Mr Abe¹s proposed new measures are diverting income away from consumers
towards business, even though inadequate consumer income and spending is
Japan¹s chief demand-side problem² (Charles Dumas, LSR, August 19)

³Japan¹s strategy is simple: unable or unwilling to adjust domestic
policies to promote consumer-led growth, it is returning to
³beggar-my-neighbour² competitive ye devaluation. Currency devaluation
actually makes a switch to consumer-led growth less likely because it
transfers income from households (labour) to businesses (profits). The
consumption tax hike, due in April, will further compound this problem. If
activity falters, the BoJ might be forced to ramp up its QE.² (ŒParty like
its 1999,¹ LSR Global Outlook 2014)

³The lack of consumer spending has been made up for by three factors:
excessive capital spending, well above America¹s despite slower growth and
a falling population; net exports though these have eroded sharply; and
budget deficits that are now set at 10% of GDP apparently indefinitely. The
new policies are designed to devalue the yen and boost the already large
budget deficit, stimulating these palliative sources of demand, but
worsening
the structural imbalance, with higher consumer taxes set for 2014.
³Featherbedding of Japanese business with excessive cash flow has caused
its share of export markets to fall almost as badly as Italy¹s, where
rising
labour costs have been a major problem. Germany, with a lesser real FX
depreciation than Japan, has greatly increased its export market share.²
(ŒAbenomics ­ another Japanese sink-hole,¹ Charles Dumas, LSR, April 4)

The Peterson Institute in Washington has been much more positive and
forgiving on the shortcomings of Abenomics.  At a seminar co-sponsored by
the Sasakawa Peace Foundation (ŒAbenomics: From Macroeconomic to
Structural Reform,¹ November 6), Adam Posen, the president of the
Institute, was keen to stress ³the Japanese economy is not as desperate
for reform as some would have it.²

Posen said the ³most critical of the reform efforts² is to boost female
participation in the Japanese labour force. This also has been a focus of
the IMF. ³Besides TPP, that is the place where we really do have to keep
the Prime Minister¹s feet to the fire,² Posen said.

Morgan Stanley thinks this is wrongheaded. Assumptions that female
participation in Japan is low, and policies to increase it will ³suffice
to offset demographic headwinds,² are both ³wrong.²  (ŒAbenomics, Labor
and Wages: Thousand Mile Journey in a Blizzard,¹ Morgan Stanley MUFG,
December 3)

Robert Feldman, Morgan Stanley¹s chief Japan economist, keeps close tabs
on Abenomics. His latest scorecard for ŒThird Arrow¹ deregulation and
structural reforms is overwhelmingly negative.



On 18/12/2013 03:06, "Alexander Arthur" <[log in to unmask]> wrote:

>I have been discussing Martin Wolf's points for some time on this forum.
>
>To recapitulate: Japanese households have relatively low incomes because
>firms keep too much of their income to themselves, either in liquid
>assets or in over-investment. Japan's capital stock relative to GDP is
>many times higher than in the US or other rich econoies. Private
>investment as a share of private output, likewise, captures roughy 5
>percentage points more than in the US, despite slower growth.
>
>So, households get screwed many ways: their savings earn abysmally low
>returns; income that could be paid to households, instead, is held by
>firms or wasted in low-returns investments; and over-investment in
>capital means smaller demand for labor.
>
>Why does this happen? My hypothesis is that corporate governance does not
>require high returns or efficient use of capital. Despite many real
>changes over the past 15 years, I do not yet see an overall shift in
>corporate behavior despite my earnest squinting at the data.
>
>The old notion that long-horizon Japanese managers and financial
>institutions were good for the economy was never true as an accurate
>description or, if true, as a harbinger of a better economic future.
>
>Arthur Alexander
>
>
>On Dec 17, 2013, at 9:02 PM, John Campbell wrote:
>
>In today's Financial Times, behind the paywall, Martin Wolf writes that a
>decent rate of inflation is achievable (though tricky not to overshoot);
>however, the target of sustained 2% growth is very tough.  With
>population decline and worker participation rates already pretty high
>(above average for men, not much below for women), output per worker
>would have to go up a lot.  But here is the main problem:
>> Nor is what is under discussion relevant to dealing with Japan¹s
>>structural imbalances: excess private savings absorbed by huge fiscal
>>deficits, which have then emerged as soaring levels of public sector
>>debt. Indeed, the Japanese debate simply ignores the huge financial
>>surpluses of the corporate sector and the low shares of household
>>disposable incomes and consumption in GDP. So fiscal policy is aimed at
>>raising taxes on consumption, which is now too low, and lowering
>>taxation of corporate profits, which are too high. . . Without a shift
>>in incomes from corporate profits to households, the structural fiscal
>>deficit cannot be eliminated, unless the current account surplus shifts
>>into a gigantic surplus. It is bad enough that the eurozone is pursuing
>>that strategy. Japan should not expect to do the same thing.
>> 
>Personally I am a bit more optimistic about improving productivity in the
>service sector (if wages actually go up), but in general I think this
>hits the nail on the head. The whole column is worth reading but I should
>not excerpt more than this.
>
>John Campbell
>
>
>
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