This Is Recession

While Japanese media stressed on political aspect of the slump of Japanese economy, foreign news organizations firmly labeled it as recession. The Cabinet Office released temporary report on gross domestic products in the third quarter of this year, which indicated annualized -1.6%. It was far lower growth than private economists expected, which had been around +2%. Prime Minister, Shinzo Abe, is planning to announce on Tuesday suspension of further consumption tax hike in next October and dissolution of the House of Representative to obtain endorsement of the public on his handling of the government. However, it is unlikely that Japanese economy will get rid of deflation under Abe administration.

Main reason of minus growth was individual consumption, which marked as low as +0.4% based on the previous quarter. It proved an argument that increase of wage had been lagging behind of inflation of commodity price. Low resilience from the damage of consumption tax hike in April was apparent in purchase of cars, personal computers and household appliances such as washing machines or refrigerators. Investment on housing and industrial asset investment showed retreat in two consecutive quarters.

Abe’s announcement of postponing tax hike means a significant policy change. He has been saying that there would be no other way than getting rid of deflation with Abenomics, or policy mix of monetary, fiscal and growth strategy, along with balancing national budget. Rescheduling of tax hike is nothing but dropping the option of fiscal reconstruction.

Response to negative economic tendency was divided, depending on each standpoint. Subsidized by Abenomics, major corporations were optimistic about the future of economy. But growing negativism overwhelmingly covers micro-economy. Retailers including department store and supermarket feel nothing strange on the outcome of the third quarter, because they already had known it. Housing makers realize that decline of yen’s value has affected higher price of building materials. “Salary of employees will not be raised only by request from the government,” complain owners of small business.

Political survival of Abe administration will not lead to defeat this recession, because he will not change the course of trickle-down theory. Money injected into major corporations will be consumed by themselves before flowing into smaller entities. Workers’ wage will not encourage individual consumption under this economic policy. Credibility of Japanese economy will be fatally eroded with solidified long-term debt.