Japan had suffered from long deflation since
1994,while most countries had suffered from inflation.However, the economic circumstance
of Japan was changed. In 2012, the
Japanese president was changed, and Mr. Abe assumed the president. He really
understands how deflation was bad, and instantly attempted to cause inflation.
As a result, Japanese economic slump is getting better, meaning annualized
growth was an impressive 4.1% in the first quarter of 2013 and consumer price rose
by 0.9% in the month of August.
Mr. Abe now attempts to raise consumption
tax for health and pension costs which strain the national budget. This article
says “The prime minister is right to raise the consumption tax, but must do
more to boost Japan’s growth”. I completely agree with what this article says. Inflation
has occurred. Consumer demand generally is raised. If the consumption tax is
raised now, it is natural that Japanese show little interest in buying goods
again. This means deflation would come back again. What Mr. Abe will do is too
early. Also, the article indicates that the economic improvement remains
tentative. In other words, Japanese economy has not completely recovered. He
should wait to raise consumption tax until Japanese economy is completely
recovered. I think that it is risky to raise the consumption task in such case.
A shocking thing about Japan's economy is that in 2011 their debt-to-GDP ratio was at a enormously high 204%, so for the annualized growth you stated previously to occur, I think that's a good sign that Shinzō Abe is guiding Japan into the right direction. Since 2011, Japan's inflation rate has stayed steadily around 0%, going below it (0.3%) in 2011 which is very impressive as well. Also why do you believe it's too risky to raise the consumption tax in this scenario?
ReplyDeleteI think that Japanese government cannot increase tax reveanue by raising consumption tax. The long deflation of Japan has just recovered. Most Japanese don't think that Japan's economy is recovered because their salary is not raised. Tha is problem. If the Japanese goverment waits a little bit, the salary of Japanese will be up as the economy is recovered, nd then the goverment can increase tax revenue.
DeleteProbably the most worrying thing about Japan's economy is that they are experiencing a rapidly aging population with a decreasing population that cannot properly replace their current workforce at healthy rates. This is something that is occurring across a lot of developed countries. As more people age, government spending in government programs to help the elderly will increase while there will be a smaller workforce that can generate output for Japan's economy in the future. Between 2006 and 2011, there was an increase of 11.2% in Japanese people who are 65 and older. While current debt-to-GDP ratio in Japan is not healthy for the Japanese economy, there is a good reason to predict that the debt-to-GDP ratio in Japan will increase a lot more in the future.
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