Third-quarter Japan GDP figures catalyst for snap election

GMT 19:03 2014 Sunday ,16 November

Arab Today, arab today Third-quarter Japan GDP figures catalyst for snap election

A set of economic data due in Japan on Monday look likely to determine the fate of "Abenomics"
Tokyo - AFP

Economic data due in Japan on Monday looks likely to determine the fate of "Abenomics", with expectations that poor third-quarter GDP figures will prompt a snap general election.
Unless the July-September Gross Domestic Product figure is unexpectedly strong, Monday's release is likely to provide the catalyst for Prime Minister Shinzo Abe to rule out a promised consumption tax rise and seek a new popular mandate, two years ahead of schedule.
The tax rises are aimed at paying down Japan's enormous national debt, but they have put Abe in a tricky position as he tries to balance them with his pro-spending growth plan dubbed Abenomics.
The market's median forecast is for a 2.47 percent annualised growth rate, according to a survey of some 40 economists conducted by the Japan Center for Economic Research.
That would sidestep a technical recession, after Japan's GDP shrank an annualised 7.1 percent in the second quarter, but it pales next to the ringing endorsement that came in during the first three months of the year, when the economy grew 6.0 percent.
Since his late 2012 election, Abe's plan to conquer years of deflation that have held back growth in the once world-beating economy has been bearing fruit.
But those efforts stumbled as consumers closed their wallets -- and nervous firms capped their own spending -- after the sales tax rose to 8.0 percent from 5.0 percent on April 1.
While most commentators said a dip in spending was inevitable after the rise -- shoppers had front-loaded ahead of the increase -- the second-quarter contraction was much more painful than many economists had expected.
Fears abound that the scheduled second increase -- written into law and due to take effect in October 2015 -- could snuff that recovery out altogether, and hurt Abe politically.
"Because it will take time for the Japanese economy to pick up in a sustainable way, general elections later on would risk his chance of being re-elected as the ruling party leader in September next year," said Tokyo University politics professor Sadafumi Kawato.
"It's better for Mr Abe to call snap elections sooner rather than later in order to minimise the number of parliamentary seats that he will lose." - Tax delay 'likely' -
Advocates say part two of the tax rise must go ahead if Japan is to maintain the confidence of the markets and not risk the punishing interest rates seen in the heavily indebted countries of the eurozone.
On Friday the government's top spokesman refused to end the speculation.
"I'm not going to comment on hypothetical questions, but our basic policy is that exiting from deflation and the revival of Japan's economy are our first priority," said Chief Cabinet Secretary Yoshihide Suga.
"At the same time, we are a government chasing two hares -- we're not an irresponsible administration," he said referring to the nation's large debt burden.
Abe told reporters Sunday: "The reason why we raise the tax rate is because we expect an increase in income from tax. If the tax income falls due to an economic downturn, we would get nothing."
Jiji Press said Abe would probably announce the snap election at a news conference on Tuesday.
Economists said a recovery in spending would be among the most crucial readings in the data, but they are divided on whether Tokyo should raise the levy on everyday goods.
"The second tax hike is likely to be postponed unless the data shows a high growth rate, something like an annualised rate of four to five percent," Credit Suisse analyst Hiromichi Shirakawa said in a research note.
Hajime Takata, chief economist at Mizuho Research Institute, said the tax plan was a must, and added that "we shouldn't be too obsessed with the July-September GDP data".
"Rather, it's better to take a longer-term view on how the economy has been doing over the past two years," he added.
"The economy seems to be on track for a sustainable recovery, but the current situation is still as if it has caught a cold: it needs medicine -- three drugs comprising monetary easing, fiscal stimulus and a growth strategy (structural reforms)."
 - Calls for reforms -
 Abe has been under increasing pressure to make good on plans to shake up Japan's highly regulated economy.
While he has made some progress, such as trying to cut farm subsidies and deregulating the electricity sector, his ambitious plans have put him on a collision course with the politically powerful agricultural lobby, among others.
One of Abe's economic policy advisers, Koichi Hamada, who opposed the April tax hike, has called for the second increase to be deferred.
"The tax hike should be delayed by half a year, or even one year, if the July-September GDP figures turns out to be weak," the professor emeritus at Yale University said in a Japanese magazine interview this month.

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