Greenwood Trading: Japan’s Prime Minister must weigh a chance to end deflation against securing welfare benefits for Japan’s next generation.
Greenwood Trading have reported that Japan’s Prime Minister, Shinzo Abe says he may be forced to delay a planned increase in his country’s sales tax if it would inflict excessive damage on its economy.
The world’s third largest economy has been forced to come to terms with unfunded liabilities including most notably the need to provide retirement and health benefits for its rapidly ageing population. The last sales tax increase a year ago from 5% to 8% had an adverse effect on an economy struggling to emerge from a two decade-long battle with deflation.
“Japan’s economy shrank the annual equivalent 7.1% between April and June this year compared with the same quarter in 2013 which shows just how much the last tax hike hit consumption,” said Simeon Kwanda, head of research at Greenwood Trading. “The increase planned for next year – from the current 8% to 10% – would almost certainly make matters worse,” he continued.
Mr. Abe’s reticence is understandable but the Bank of Japan, the country’s corporate community and the International Monetary Fund (IMF) are keen to see Japan reduce its colossal debt mountain, the biggest in the world relative to its GDP. Mr. Abe is reasoning that if the economy derails because of the sales tax hike, there will be less in the way of tax revenues from business and consumers anyway to meet fiscal imperatives.
Consensus among analysts at Greenwood Trading is that the sales tax won’t be increased next year because of a slowing in growth in Japan’s key export markets like the US and Europe.
“The Bank of Japan has said it is ready to add more monetary stimulus to the Japanese economy but these policies are an unproven and hugely risky gamble with the value of the yen. Nevertheless, for investors in Japanese equities, it’s an excellent opportunity to benefit from meaningful increases in value,” concluded Kwanda.
About Greenwood Trading:
Clients come to Greenwood Trading to avail themselves of our experience and our broad, comprehensive range of professional investment management services. More importantly, they remain with us because they can rely on us to provide them with the personalized service and the returns on investment their capital deserves.
Greenwood Trading’s philosophy revolves around collaborating with our clients. By leveraging our intimate knowledge of their situations and our investment expertise, we create a platform from which we can achieve their objectives in a time horizon and in a manner commensurate with their current and future needs.
Contact Greenwood Trading:
Tokyo Takarazuka Building, Floor 14,
1-1-3 Yurakucho, Tokyo, Tokyo-to, Japan
Fax: +81 3 6735 7085