The Japanese Feel The Heat From The Big Lie Of Abenomics

Wolf Richter's picture

Wolf Richter

We have to give grudging respect to Japanese Prime Minister Shinzo Abe for his brilliant successes in several realms: His visit to Yasukuni Shrine, where convicted Japanese war criminals are honored alongside soldiers who gave their lives in battle, elegantly ruffled some feathers among Japan's most important trade partners; the yen and all assets denominated in it, including household savings, have lost about 25% of their value since his policies were baptized “Abenomics” in late 2012; and one of his promises, inflation, has kicked in nicely.

The consumer price index for November is now up 1.5% from a year ago. Less “imputed rent,” inflation rose 1.9%. Service prices were up 0.6%, and goods prices jumped 2.5%. It was broad based. Fuel and utilities rose 5.7%, food 1.9%, clothes and shoes 0.6%, transportation 2.3%, culture and recreation 1.2%, miscellaneous 3.3%. At this rate, Abenomics will ace its 2015 target of “2% price stability” – a central-banker insider joke that those who pay for it, namely consumers, just don’t get.

Now Abe is practically begging Japan Inc. to increase wages. But why should they? They’re sitting on the Abenomics gravy train: more government money, lower taxes, a devalued yen that inflates earnings from exports and overseas operations, and an asset bubble, particularly in the stock market. They get all this while paying their workers less. It’s corporate nirvana.

As if to drive home the point, the Japanese Statistics Bureau just reported incomes and expenditures of households with two or more persons, the vast majority of households in Japan. Average income rose 0.8% in nominal terms from a year ago. But after inflation – the dazzling achievement of Abenomics – average income dropped 1.1%.

Inflation without compensation. Hapless Japanese households get to bear the brunt of Abenomics. Inflation is whittling away at their real incomes. As they feel their belts being tightened, they adjust their spending. So average household spending in November was up 0.3% in nominal terms from a year ago. But adjusted for inflation, it dropped 1.6%.

Hidden in this awful number are even more awful numbers. The consumption-tax hike from 5% to 8%, effective April 1, 2014, is motivating households to do what they did last time the consumption tax was raised: frontloading of big-ticket items to save 3%. Household purchases of durable goods jumped 25.2% in November from prior year. It made retail sales look good (up 4% year over year). But households cut spending in other areas, including services by 3.7% and education by 14.2%.

The hangover will hit in 2014 – when durable goods purchases will plunge. Every adult in Japan knows how that works. Been there, done that. The government knows it too. Hence its ¥5.5 trillion “supplementary budget” that will be handed out to various constituents, particularly Japan Inc., to compensate for the loss of household purchases. But these households won’t see any of that stimulus money. Instead, they’ll see the consumption tax hike which will add 3% to nearly everything they pay for.

This is where they will feel the heat from the lie of Abenomics.

The average household has ¥436,000 in monthly gross income ($4,150). It pays income taxes and other deductions, saves a little, and spends the remaining ¥279,000. Let’s assume that the official hopes come true and that in fiscal 2014, gross income will rise by 2% or by about ¥9,000 to ¥445,000. So that would be the miracle that hasn’t been performed yet.

But income taxes might eat up ¥3,000 of the increase, leaving a net increase of ¥6,000. Let’s also assume that inflation will be 2% as planned – and not a lot more, given that the Bank of Japan has promised to water down the yen 50% by 2015, come hell or high water. It will raise the cost of outlays by about ¥5,000 to ¥284,000, leaving a measly ¥1,000 per month of the miraculous income increase.

The consumption tax will tack 3% to just about all goods and services at every stage of the process; even building a house gets 3% more expensive. The hike is expected to raise ¥4.5 trillion in fiscal 2014 and make up 10% of total tax revenues. It might cost the average household ¥6,000 per month. And if it does, that household is ¥5,000 per month, or ¥60,000 ($571) per year, in the hole.

That’s the government’s desired best-case scenario.

This is why the newfangled Abenomics math is a big lie. It won’t work out for Japanese households. They’re going to pay the price. And unless they can be made to borrow against their already dark future – they’re saddled with ¥1 quadrillion in public debt – they will have to cut spending in real terms. Inflation without compensation and a consumption tax hike make a very toxic economic mix.

Just before Christmas when no one was supposed to pay attention, Prime Minister Abe and his ministers agreed on a budget for fiscal 2014. It’s a doozy. Instead of slowing down the fiscal fiasco, Abenomics is speeding it up. With an elegant solution. Read.... No Money, No Problem, Bank of Japandemonium Takes Care Of It

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steveo77's picture

This is going to trip you out.    I discovered this by accident while doing a "super zoom" into some high res Fukushima photos from a drone flyby in March 2011.

Areas of exposed high radiation (melt out or blow out) show as a set of 36 pixels being all the same color in a Mini Block.    They are never all the same color, except when the radiation flashes them and the camera can only react by "printing" a single color.

Very interesting

Also confirms a meltout from Reactor 4.    Look at all these and let me know what you think.

Yen Cross's picture

  I find this figure very disturbing. The natives are starting to abandon Abenomics. JGB yields have been creeping higher again, and no one is really talking about it.

  18:50       JPY         Foreign Bonds Buying     -680.6B     previous>      125.6B    


  * Foreign Bonds Buying number measures the flow from the public sector excluding Bank of Japan. The Net data shows the difference of capital inflow and outflow. A positive difference indicates net sales of foreign securities by residents (capital inflow), and a negative difference indicates net purchases of foreign securities by residents (capital outflow). A higher than expected number should be taken as positive to the JPY, while a lower than expected number as negative.

sunny's picture

Greece had the chance but instead of bailing out, they voted the same bastards back in.  Same for Cyprus.  We vote for either Democrats or Republicans (no significant difference) so we have no one else to blame but ourselves for what is happening here with yet another round of can kicking.  Why should we be surprised that the voters of Japan are getting screwed, they did what everyone else did and are paying the price like everyone else.  

Life is like that.


TNTARG's picture

The Japanese (and the World) is feeling the HEAT from the melted coriums of Fukushima. Abenomics isn't the biggest Abe's lie.

In crescendo.

russwinter's picture

China is about to pull the plug on exposed Abe and Japan via economic warfare and a JGB dump. 

q99x2's picture

Take it from a guy from Pittsburgh, "Get rid of your Central Bank and convert your currency to Bitcoin."

Hedgetard55's picture

Karma is a byatch. Payback for what the Sons of the Rising Sun did to the world in WW2.

litemine's picture

You better hope your Wrong. If this is the payback for WW11, what should America expect as payback for using Agent Orange and Depleated Uranium on the soil  of other Countries that unborn Babies suffered due to NOTHING THEY DID? The Petro Dollar profited few, yet many suffered. Google what affects it had and still does.

pashley1411's picture

You might consider that the opposite of Abenomics, is Greek-economics.   Permanent and crippling deflation, appocalyptic youth unemployment, death-spiral debt increases.   While Abenomics may be miserable for Mrs. Watanabe, there is a (comparatively impoversed) future.

The common thread between Greece and Japan is no kids - no growth.   Neither can grow out of their troubles.  So Abenomics, and PIIGS deflation, are both two sides of the same population-depleted coin.  

Given their reduced populations, the taxable "carrying capacity" of the tax base for legacy infrastructure and debt repayment is minimal.


el Gallinazo's picture

Greece is just used as a revolving door for Euro pseudomoney.  Bailouts from the Troika goes in the door and the money comes out the other end headed for the bankrupt TBTJ banksters.  The Greek people (not the criminal politicians) get the bill.  Just another bankster statist scam.  Greece's only hope it to leave the Euro, restart their own currency, and hang all the domestic banksters and politician.  Basically to start over.  

SeattleBruce's picture

Deflationary depression or high/ hyperinflation are both bad. The Great Depression was the former, Weimar, Zimbabwe, Argentina, Venezuela the latter. I think we'll have mixtures of both as the debt burden implodes around the world, but TPTB benefit much more from managed inflation (managed to their liking - forget about the little guy), and of course their parasitical partners in crime - politicians and their armies also benefit for a good while with the CBs monetizing otherwise totally unmanageable (criminal levels of) debt. So, that's why you'll see soo much more printing until they finally totally lose control of the "game" - then look for the mafia to scramble to reposition themselves during the reset. Many Murikans are too dumbed down to oppose that. They do seem to be losing control of some of the many moving pieces, and also there are competing sets of PTB in the world - with US, China, Russia and Europe coming to mind. Many moving parts and some pieces they're losing control of.

kaiserhoff's picture

There might be a third way.

We could (GASP!) cut the cancer of government in half, and jail the banksters and the tyrant class.

Coming soon, to a well armed America.

PS  Ammo is still in short supply along the Blue Ridge.  Getting better anywhere?

Yancey Ward's picture

The lie of inflationism can always be seen by the refusal of TPTB to actually send the checks to the citizens.

SeattleBruce's picture

Excellent point. Why aren't the central banks busy monetizing the people's worthless securities in the form of massive credit card debt? Imagine how much we'd spend if they'd buy up all our debt and "disappeared" it on their "balance sheet"? Imagine what would happen to the velocity of money if that happened though. Trickle through inflation has been bad enough, but that would cause direct inflation. So that game a) doesn't work well and b) doesn't enrich the CB's masters - the bankstas.

starman's picture

time for Godzilla to give birth to baby Godzila. Economy saved Abe is a hero! 

RafterManFMJ's picture

Why hello there!

As your duly elected leader, it will be my express purpose and policy to impoverish you! To steal from you with high inflation, higher taxes, and wild printing of the monies! Please not to be worry! This is all for you, dear peoples! HaHAHAAAA!!!

duo's picture

too bad they already have single payer, or their middle class could have been Obamacared into oblivion by that much faster and easier.

BigJim's picture

Having decided to emulate the acheivements of Zimbabwe's central bank's policies, perhaps the Japanese 'leadership' will do the same with Obamacare.

SeattleBruce's picture

Why do we believe any of these activist politicians? The only ones that do anything for the people are the ones that obstruct and block.

kchrisc's picture

It's all over but the sinking.

lordbyroniv's picture

I hear the fabric of society ripping already.


300 YEN OR BUST !!! [MOAR!!!]

Al Huxley's picture

It's almost like Japanese corporations are behaving like corporations, and not like good members of the Japanese society.  Imagine, sticking it to their workers while profiting from a booming stock market and devaluing currency!  Sounds like something an American corporation might do, but certainly not those civic-minded Japanese folks!

AngelEyes00's picture

AH, you got that right.  In this last period of BAU before oil begins a descent from peak and the long recession begins in earnest irrespective of QE, ZIRP and Operation Twist, apparently anything goes to grab as much loot as possible for the long tough infrastructure crumbling road ahead. 

Oracle 911's picture

... and from the radiation of TEPCO's Fukushima plant.

disabledvet's picture

that will cause inflation whether you want it to or not. If a "great reset" also comes this way...well, that is the second largest economy in the world. (Rumor is of yen hitting 140-160 at the moment.) Japan could end up simply "abandoning the job." we'll see. this is a very complex issue...a reason i thought we had the UN...and reason why the UN was placed in New York City actually. The only "paens for action" come from Vermont ironically enough. And after the story about the Aircraft Carrier Ronald Reagan's experience reported here I doubt you'll get a lot of motivated plans from that group right now either. I think we're gonna have a wild week next week, and a wild start to 2014.

kaiserhoff's picture

You make a number of good points.  Where in the hell are all of the overpaid, overfed "world leaders"?  Too busy with selfies and holidays, it seems.

The markets are so rigged and distorted, it's hard to make sense of anything, but no one seems to have the end of the Japanese economy "priced in".   Buckle up.  Air pockets ahead.

Oracle 911's picture

Well for Japanese taxpayers, economy and international trade balance is good the strong Yen, for exporters not so good, so I belive in the future they will have a fixed rate too Rubel or Yuan.