BoJ Says Ample Room for Easing After Spending Crash

The Bank of Japan is looking at further easing as retail sales plunge.

Retail Sales Plunge to 4.5 Year Low

On October 1, Japan increased its sales tax to 10 percent from 8 percent. In response, Japan's Retail Sales Plunge to a Multi-Year Low.

Japan's retail sales tumbled at their fastest pace in more than four and a half years in October as a sales tax hike prompted consumers to cut spending, raising a red flag over the strength of domestic demand.

Retail sales fell 7.1 percent in October from a year earlier, pulled down by weak demand for big-ticket items such as cars and household appliances as well as clothing, trade ministry data showed on Thursday. The data showed department store sales were hit particularly hard.

The drop marked the biggest since a 9.7 percent fall in March 2015 and was worse than a 4.4 percent decline predicted by economists in a Reuters poll.

Japan Ruling Party Piles Pressure on Government for Big Fiscal Spending

Next, please consider Japan Ruling Party Piles Pressure on Government for Big Fiscal Spending

Japan's ruling party lawmakers on Wednesday piled pressure on the government to compile a big spending package, increasing the chance fiscal policy could play a bigger role in sustaining a fragile economic recovery with the risk of more debt issuance.

With tax revenues seen undershooting the government's forecast this year, calls for bigger fiscal spending heighten the chance Japan will issue more bonds and further delay progress in reining in its huge public debt, analysts say.

Bank of Japan Gov. Haruhiko Kuroda Offers Spending Endorsement

The ruling party can increase spending because Bank of Japan Gov. Haruhiko Kuroda offers endorsement of more fiscal spending.

Bank of Japan Gov. Haruhiko Kuroda endorsed on Thursday government plans to compile a fiscal spending package for disaster relief and measures to help the economy stave off heightening global risks.

Kuroda said a mix of fiscal and monetary stimulus measures was a standard way to support the economy, and something the BOJ was already doing by keeping borrowing costs low under its yield curve control (YCC) policy.

"YCC, which intends to keep short- and long-term rates quite low, would make fiscal policy even more effective," he said. "But our monetary policy will continue to be guided by our major objective, which is to achieve price stability and keep financial stability."

Ample Room for Cuts

Finally, please note BOJ's Kuroda Says There's Ample Room for Further Easing at Present.

Bank of Japan Governor Haruhiko Kuroda said on Friday that the central bank would not hesitate to ease policy further if the momentum towards its price stability target is lost as there's "ample room" for more easing.

Speaking at parliament's lower house financial committee, Kuroda also said the BOJ would weigh costs and benefits if the central bank were to deploy additional easing steps.

Japan General Government Gross Debt to GDP

Q&A on Japanese Debt

Japan's government debt to GDP is approaching 250%. It's the highest in the developed world and more than double that of the U.S.

Q. How did Japan get there?

A. Fiscal stimulus to defeat deflation, wasting every penny of it.

Synopsis

1. Japan wasted money for decades in a foolish attempt to defeat routine price deflation.

2. To rein in the debt, Japan hiked taxes.

3. Following tax hikes, spending plunged as did tax revenues.

4. To stimulate the economy, the central bank lowered interest rates, more and more and more and more.

5. When that did not stimulate the economy, the government wasted still more money on still more useless infrastructure projects.

Abenomics

This above scenario is called "Abenomics" in honor of Shinzō Abe, the Prime Minister of Japan since 2012 even though Japan had been wasting money fighting deflation since the 1990s.

Three times Abe hiked taxes to curtail debt only to spend more money each time when the tax hikes killed consumer spending.

And so here we are once again with "ample" room to spend more and cut rates despite rates being negative.

Hope Springs Eternal

This is all happening in hopes of producing inflation.

The BIS did a historical study and found routine deflation was not any problem at all.

"Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive," stated the study.

It's asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks' seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Uncertainty Prevails

Abe likes to hike taxes and spend more.

It hasn't stimulated the economy yet and never will.

Yet, uncertainty prevails. How many more times Abe will try this foolish plan remains a mystery.