5 Big things happening in the Japanese economy right now

No Rush Purchases as Japan Expects Another Sales Tax Hike

Japan is planning a sales tax hike for October but it is not expecting any undesirable effects.

2019 see’s a Prime Minister Shinzo Abe who is trying to keep his currently weak economy expanding by increasing sales tax but he wants to avoid an economic shock similar to the one following the 2014 hike. So far demand for houses, consumer goods and cars, indicators of panic buying, has not picked up since he announced the sales tax hike.

Japan’s economy is suffering from a growing debt burden, a fall in worldwide tech demand, and effects of trade tensions between China and the U.S. Consumer sentiment is already worsening but it’s not easy to tell how the economy will react to the sales tax increase. However, the government hopes to soften the effects of the increase by giving tax breaks on car and house purchases and rebates for cashless payments in order to encourage continued spending.

Image source: https://commons.wikimedia.org/wiki/File:12-Chureito-pagoda-and-Mount-Fuji-Japan_(29677439878).jpg

The U.S. and Japan Might Hold Trade Talks Later in July

Officials at vice-minister level in the United States and Japan met on Friday July 12th where they agreed to hold trade negotiations on automobiles and agricultural products possibly between 24 and 26 July. The negotiations started mid-April and so far, there have been agreements on tariffs for all products on bilateral trade. On July 12th they agreed on a number of things including what the ministers, senior officials and working level officials will handle at the negotiations.

The meeting to be held in Washington from July 24th will be attended by senior and working level officials from the Japanese ministries of finance, trade, agriculture and foreign affairs. The U.S. will be represented by senior officials from the Department of Agriculture and the Office of the U.S. Trade Representative.

This meeting of the officials will possibly be followed by several ministerial meetings starting in early August. These meetings are expected to produce results before the two heads of state meet in late September.

Japan’s Current Account Surplus Declined by 15.8% Due to Weak Exports to China

According to the Japanese government data released on Monday July 8th, the current account surplus fell to 15.8% in May as exports to China went down amidst U.S.-China trade tensions. While Japan has enjoyed a continuous surplus for 59 months, the surplus has fallen for the third consecutive month.

A number of factors contributed to the decline. Though Japan enjoys a goods trade surplus with the U.S., it posted a goods trade deficit of ¥650.9 billion because of weak exports to China and South Korea. Exports fell by 6.3% from the previous year because of lower demand for automobile parts in China and semiconductor manufacturing devices in South Korea and China. Imports fell by 0.9% to ¥6.57 trillion because of less shipments of liquified natural gas to Japan.

What has kept Japan’s current account in surplus for a long time is solid income from foreign investments, service trade and travel which together recorded a total surplus of ¥2.627 trillion.

BOJ’s Deputy Governor Will Consider All Options if More Easing is Required

On Friday July 5th, the Deputy Governor of the Bank of Japan, Masayoshi Amamiya, said he will look at all possible options, including deepening negative interest, in order to stimulate the economy. Later he said, at the Reuters Newsmaker event, “For now, our baseline scenario is that Japan’s economy will continue to expand moderately and gradually push up inflation to our target. The Japanese economy is suffering under the U.S.-China trade tension.

The BOJ is considering four options: accelerating money printing, deepening negative interest, ramping up asset buying and cutting its o% long-term bond yield target. Though financial institutions are not happy with the negative interest rate which is hurting their margins, the deputy governor said he will not rule it out. Some analysts predict the BOJ could ease monetary policy any time now at this month’s rate review.

WTO Discussing Japan Trade Restrictions to Korea

The World Trade Organization (WTO) is discussing Japan’s restrictions on South Korea before Japan implements more restrictions in August. On July 4, Japan decided to restrict exports to South Korea of hydrogen fluoride, photoresists and fluorinated polyimide. Korea, which is disputing the restriction, reported the matter to the WTO after failing to organize talks with Japan. Korea is hoping to have the restrictions revoked as they violate WTO standards. A resolution will not be sought on the first day of the meeting but there is hope for a dispute settlement. South Korea has sent Kim Seung-ho, chief of the office of international trade and legal affairs to represent it.