Comments on: Abe’s disturbing lack of focus Sat, 03 Jan 2015 16:42:55 +0000 hourly 1 By: 2Borknot2B Sat, 17 May 2014 20:17:32 +0000 L.

By: epockismet Tue, 29 Apr 2014 19:27:50 +0000 One word, Fukushima. Much like Chernobyl’s effect in removing Russia as an economic power in the 80’s.

By: gemmoo Fri, 25 Apr 2014 11:42:42 +0000 I have to disagree with your opinion that Prime Minister Abe is losing his focus on economic recovery. I don’t know who you are talking to in Tokyo but they are uninformed about the purpose of the consumption tax and why Abe has no choice but to continue with the planned increase to 10%.

In your analysis, you ignore Japan’s most important issue, its aging population. Revenue from the consumption (VAT) tax is earmarked for social welfare programs, primarily public pensions and the national health system. The government’s contribution to the public pension system is the single largest line item in the national budget every year. Everyone in Japan between the ages of 20 and 65 is required to participate in the public pension system. Without a broad-based tax, such as the consumption tax, to support public pensions, the system would soon become unsustainable.

People aged 65 and over are already about 25% of the population. In another 30 years, they will be more than 40% of the population. How do you support a growing number of retirees with a shrinking workforce? You get the retirees to support themselves–to an extent–by paying the consumption tax.

Unless Japan can address the funding of its public pension system, it cannot address the broader issue of government debt. This is the first, necessary step towards the reform of public finance in Japan.

As for Abe’s “militarism,” this is supported by the US. Look at a map of the Chinese coast. You will see that China has no easily defensible access to the open waters of the Western Pacific. China is building a blue water navy but it is bottled up against the Chinese coast.

From China’s perspective, the US Navy is the biggest threat to the security of its shipping lanes. Without access to open water, China cannot defend its shipping.

China is challenging Japan’s sovereignty over the Senkaku Islands as a first step towards challenging Japan’s sovereignty over the southern Ryukyu Islands. If China can successfully assert its claims to the two island groups, it will have created its strategic, defensible opening to the Pacific.

There is a case for China to make to assert its claims over both territories. Personally, I think it is a weak case but it is the only option China has short of outright invasion.

The US and Japan would, of course, prefer to keep the Chinese navy bottled up against the coast.

These are the big issues that Abe is dealing with. I think the economy can handle the tax increases but I doubt that the pension system can survive without the tax increases. As for “militarism” Japan is better off if China cannot project force that threatens Japan’s sea lanes.

By: rvm3 Fri, 25 Apr 2014 08:15:45 +0000 Anatole, I like your stuff very, very much. But one thing to note is the Japan equity market is surprisingly seasonal, and the winter Japan trade is a classic one.