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from Breakingviews:

Japan’s GDP sacrifice is price well paid

By Andy Mukherjee 

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

Japan’s GDP sacrifice is a fair price for much-needed fiscal correction.

The country’s output plunged an annualized 6.8 percent in the second quarter from the previous three months, according to the Cabinet Office’s preliminary reading. The decline, which stock market investors had expected and therefore largely ignored, was a direct consequence of the April 1 hike in Japan’s sales tax, the first since 1997. Raising the levy by 3 percentage points prompted households to curb spending by a massive 19 percent.

But for Prime Minister Shinzo Abe, taking a temporary hit on private demand is an acceptable cost of mending the nation’s public finances. The government’s debt load, which the International Monetary Fund says will rise to 245 percent of GDP by 2019, makes it crucial for Abe to press on with fiscal correction.

Abe has the scope to go beyond a scheduled second increase in the sales tax next year. That’s because austerity in Japan is unlikely to be the kind of self-defeating exercise that it has proved to be in Europe. For one, even though real output took a big hit, prices of everything rose a little bit because of the additional levy; nominal GDP barely fell in the second quarter. In other words, fiscal retrenchment is unlikely to worsen the government’s debt-to-GDP ratio.

from Breakingviews:

SoftBank’s U.S. mobile retreat is least bad option

By Peter Thal Larsen 

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

Masayoshi Son has been forced to scale back his mobile phone ambitions in the United States. The chief executive of Japan’s SoftBank has belatedly bowed to hostile regulators and abandoned plans for his Sprint unit’s $32 billion takeover of T-Mobile US. He has chosen the least bad option.

from Breakingviews:

Line’s $13 bln valuation shows chat app exuberance

By Robyn Mak and Una Galani

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Line’s apparent $13 billion valuation sends a strong signal about chat app exuberance. The Japanese mobile messaging app’s quarterly revenue jumped 26 percent from the previous three months, its parent company reported on July 31. That pushes up valuation expectations ahead of its planned initial public offering. Yet Line’s valuation hangs on the assumption that new overseas users will spend like those back home. That seems like wishful thinking.

from Breakingviews:

Japan’s bond-hugging banks are pinning Abe down

By Andy Mukherjee

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

Japanese lenders’ outsized government bond holdings have Prime Minister Shinzo Abe in a chokehold. Unless banks shed the load now, they might try to dump the debt when the Bank of Japan stops printing money and causes bond prices to fall. A stampede could rattle the financial system and dent Abe’s anti-deflation campaign.

from Nicholas Wapshott:

Nothing pacific about it: Japan pushes back on China

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

China is on the march. Or, to be precise, China has made a strong push, militarily and otherwise, into seas nearby, setting off alarms among its neighbors. Now Japan has pushed back, announcing it will “reinterpret” its pacifist constitution so it can be more militarily aggressive in responding to China’s persistent territorial expansionism.

Japan’s actions, however, have also raised alarms. A century ago, Japan set out on a destructive path of conquest, and many still remember firsthand the brutality with which Japanese troops occupied the region -- from Korea and the Philippines, through Manchuria and China, Vietnam and Thailand, all the way to Singapore. Though China is now threatening peace, the memory of Japan’s savage adventurism adds to the general unease.

from Counterparties:

The Abenomics arrows

Abenomics grinds on. Bloomberg has just put out a new report on the state of Japanese prime minister Shinzo Abe’s project to revive his country’s economy and concludes that “the record is mixed.” “Inflation is up, though import prices rather than wages account for the bulk of the increase. A skeptical public remains unconvinced that long-term prospects are brighter.” Japan is a little over 18 months into Abenomics, and two of the three “arrows” — fiscal stimulus and monetary easing — have been deployed. Barry Ritholz thinks they’ve already been pretty successful so far: “deflation is being replaced by inflation; profits and investments are both increasing for Japanese companies; and the Nikkei 225 is up considerably.”

However, there’s plenty to be worried about. Back in April, Japan raised the consumption tax to 8% from 5% — the first hike since 1997 (which threw the economy into a tailspin). It was supposed to be “the fatal flaw in Abenomics,” according to theEconomist, but “the early signs are that a preternaturally lucky Mr Abe has got away with it.” However, the Japan Times writes today that the economy has taken a significant hit after the tax hike: average household consumption is down, wage growth is below inflation, corporate capital investment hasn’t made up for the fall in household consumption, and export growth is sluggish.

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.

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.

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