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from Breakingviews:

Japan’s corporate tax cut could harm Abenomics

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Shinzo Abe wants to prove his reform credentials by cutting Japan’s 36 percent corporate tax rate. But the prime minister’s plan could backfire and end up harming his anti-deflation campaign.

The Japanese government on June 24 announced a plan to slash the rate to less than 30 percent over the next several years. There’s no clarity yet on the final rate, or how the largesse will be funded.

The plan’s vagueness is disconcerting, but its rationale is dubious, too. Japan’s overall tax-to-GDP ratio is low among rich countries. Less than a third of companies pay any taxes, and the effective rate for large conglomerates is just 13 percent. Although the burden will rise with improving profitability, the increase won’t be dramatic: companies will use past losses to keep their payouts low for years.

from The Great Debate:

Is Iran being victimized by sanctions it doesn’t deserve?

A security official stands in front of the Bushehr nuclear reactor

Iranian officials met this week with their six-power counterparts to try to hammer out the outlines of a comprehensive nuclear deal set to last for several years. But its precise duration remains undecided.

Reaching an agreement will be a monumentally challenging task because all the parties have veered away from international law and are trying to make ad hoc arrangements. They should instead aim for a permanent, straightforward and legal solution whose basis already exists. Successfully sealing a deal with Iran may also help Western efforts to stabilize the situation in Iraq, where Iranian and Western interests align.

from The Great Debate:

Let Japan help defend America — and itself

Members of Japan's Self-Defence Forces' airborne troops stand at attention during the annual SDF troop review ceremony at Asaka Base in Asaka

Japanese Prime Minister Shinzo Abe is now following through on actions laid out in his recent bold speech calling for Japan to defend allies who might be under attack.

But wait, you may ask, hasn’t the United States had a mutual security treaty with Japan for more than half a century?

from Anatole Kaletsky:

Euro zone’s big problems require big fixes

ECB President Draghi addresses a news conference in BrusselsAt last, the European Central Bank seems ready to inject some adrenalin into the moribund euro zone economy. After last week’s news conference, when European Central Bank President Mario Draghi strongly hinted that action would take place after the June 5 council meeting, there have been a host of interviews and leaks specifically describing the new ideas the bank has in mind.

The biggest measure, now almost a foregone conclusion, will be a cut in the interest rate the ECB pays on bank deposits from zero to negative 0.1 or 0.2 percent. Bank officials have also hinted at several additional stimulus measures: extension of loans to commercial banks at low fixed rates for three years or even five years; ECB purchases of bank loans to small and medium enterprises, packaged into asset-backed securities; and concessional lending to European banks on condition they pass on these funds to small and medium businesses.

from Breakingviews:

Japan index: Wages bigger worry than spending

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

With the sales tax rising from April 1, the shopping spree that pushed the Breakingviews Abenomics Index to a 12-year high in March has ended. But sluggish wages are a bigger threat than a consumption freeze. If pay disappoints, the spending gloom may become more persistent.

from Ian Bremmer:

Japan’s path forward, in five steps

japan888

On the surface, Barack Obama’s recent Japan visit struck all the right chords for Tokyo. For the first time ever, an American president stated that the U.S.-Japan security treaty extends to the Senkaku/Diaoyu islands dispute, the most combustible geopolitical conflict between Japan and China. And Obama and Japanese Prime Minister Shinzo Abe announced a “key milestone” for negotiations on the Trans-Pacific Partnership (TPP), the trade deal that encompasses 12 countries and more than 40 percent of the world’s economic output.

But there was less to the visit than meets the eye. Obama’s Senkaku pledge was a restatement of existing U.S. policy. The “key milestone” on TPP was never identified; in fact, it seems that the 40 hours of bilateral discussions between the U.S. and Japan led to no breakthrough at all. And while the trip was a big win for Obama -- he managed to placate Tokyo without provoking Beijing -- it didn’t offer any solutions for how Japan should deal with a rising China.

from MacroScope:

Will sanctions bite?

Financial markets may view the latest sanctions against Russia as feeble, but the reaction from Moscow – Vladimir Putin threatened to reconsider Western participation in energy deals and his foreign minister, Sergei Lavrov, said they were the work of weak politicians – suggests otherwise.

Russia's top oil producer, Rosneft, will release first-quarter financial results after its boss and close Putin ally Igor Sechin was put on the U.S. sanctions list. Yesterday, energy giant Gazprom – whose chief escaped censure – said further Western sanctions over Ukraine could disrupt its gas exports to Europe and hit its business and shares.

from Breakingviews:

Abe’s small hits weightier than big trade miss

By Andy Mukherjee 

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Shinzo Abe’s big miss in prizing open Japan’s farm economy is making investors needlessly glum. The prime minister’s smaller recent successes, from thawing out frozen land and labour markets to reining in healthcare costs, add up to a strong reform push.

from Anatole Kaletsky:

Abe’s disturbing lack of focus

President Barack Obama’s trip to Asia this week has focused mostly on Japan’s territorial disputes with China. On this issue, Obama seems to be repeating the same mistakes he made in Ukraine.

By creating false expectations of U.S. support for the Japanese position, the president is encouraging Japan to escalate its belligerent rhetoric. That, in turn, makes Chinese military action to seize the disputed islands more likely. Everyone knows that there is no chance of the United States going to war with China to defend Japan’s claim to four uninhabited lumps of rock.

from Breakingviews:

Japan index: Economy is ready to take on tax hike

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The Breakingviews Abenomics Index climbed to a six-year high in February, suggesting the economy has enough strength to withstand this month’s sales tax increase. Wages and inflation expectations firmed up, while hopes of further monetary easing pushed bond yields lower.

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