The New CS Board

[jumanji0881]

Japan faces moment of truth.
Japan Faces Moment of Truth
Excerpts:
Japan is in deep serious trouble the moment it enters a sustainable period of negative or neutral current account balances. If Japan becomes dependent on foreigners to finance rollovers on its debt either the Yen sinks or interest rates rise. Interest rates at a mere 3% would currently consume all of Japan's tax revenue.

The government only announced its draft proposals for tax and social security reform on January 6. The plan involves a hike in the consumption tax rate from the present 5 percent to 8 percent in 2014 and to 10 percent in 2015. The government’s ambiguous language implies further increases in the future, with some in business circles pressing for a rate as high as 25 percent, according to the Yomiuri Shimbun.

This is a moment of truth for Japan, perhaps the first of many. The question at hand is critical: Is the trade deficit a new trend or simply the long-lasting spillover from the tsunami?

Today's answer may be different than tomorrow's.

A prolonged European recession coupled with stubbornly high oil prices and a slowdown in China is the disaster scenario for Japan.

That scenario is not at all unlikely. A deep European recession is a given and I believe a serious slowdown in China is a given as well. By pressing for tax hikes, it seems Japan's prime minister feels the same way, regardless of what the Bank of Japan says for public consumption.