Abe Considering Another Postponement of Tax Hike on Poor Consumer Spending

Key points: - Kantei considering another postponement of the consumption tax hike - This is partly due to upcoming election and partly due to ongoing bad news on consumer spending - Consumer spending in January was down a whopping 4% from a year ago - Spending is now even lower than it was in mid-2014 after the consumption tax was raised from 5% to 8% - Auto sales are down 20% from a year ago - Some economists see GDP falling again in January-March, after having fallen at a 1.4% annual rate in October-December

TOE Alert: Exports Plunge 9% in January from Year Ago; GDP Forecasts for 2016-17 Being Lowered

Key points: - In January, real (price-adjusted) exports plunged by 9% from a year ago, the most severe downturn in three years; three-month average down 5% - Declining exports are a global problem for Japan, not a China problem - Nor does it seem a problem of a global slowdown in imports, but of a Japanese loss in market share ​- Credit Suisse sees GDP growing just 0.4% in calendar 2016 and falling 0.1% in 2017 (latter assumes tax hike is implemented on schedule in April 2017)

TOE Alert: Growing Number of Currency Traders See Yen Going to Y95-110 Per Dollar; Abe Aide Says Delay Consumption Tax

Key points: - Abe Advisor Honda calls for postponement of consumption tax hike - Investment bankers increasingly see yen moving to ¥95-110/$ during 2016 - Even MOF intervention seen as creating only temporary interruption in yen rise ​- Separating out the fundamental and technical factors

TOE Alert: GDP Falls 1.4%; Still 0.4% Below Pre-recession Peak Almost Eight Years Ago

Key points: - GDP fell at 1.4% pace in Oct-Dec. - This is the eighth quarter of the last 16 in which GDP has fallen - GDP still 0.4% below pre-recession peak almost eight years ago - At this point, Japan’s recovery from 2008-09 slump no better than in Eurozone - US, UK and Germany all doing substantially better than Japan - Biggest hit to growth is ongoing slump in consumer spending; spending even lower than it was almost four years ago in Jan-March 2012 - Artificial stimulus of spending on consumer durables has gone into big reverse - Second arrow missing in action as government spending flat for last two years

TOE Alert: BOJ Negative Rates Backfire; People Move to Cash Instead of Stocks

Key points in Richard Katz's report include: - Kuroda’s negative rate policy presumes low rates will force firms, banks and households to shift to higher-return risky assets - But Kuroda’s premises about firm and household behavior have been consistently mistaken - They are based on theories about what a perfectly rational person would do rather than looking at what real-world firms and households actually do - Ever since the BOJ pushed interest rates to the floor, beginning in 1995, households have shifted out of higher return time deposits at the banks into cash and ordinary deposits, which pay almost no interest - They have not increased their purchases of insurance annuities - Pension funds have gone up because people have no choice ​- Households have been consistent sellers of stocks in the past decade, selling even more when the market is rising a lot

TOE Alert: Real Wages Fall almost 1% in 2015; Fourth Consecutive Fall

Key points of this TOE Alert include: - Real wages per worker fell 0.9% in 2015, marking the fourth decline in a row; - One of the most disappointing omens for the future in the December report was the 0.8% fall in nominal bonuses, a harbinger for a disappointing shunto negotiations on overall wages; ​- Some officials and economists keep blaming the data, rather than look at the reality

TOE Alert: Financial Market Mayhem

Key points for Richard Katz's TOE Alert include: - Stock prices fell 5% on Tuesday and another 2.4% Wednesday morning to the lowest level since Kuroda’s “monetary bazooka” of October 2014; - The yen stands at ¥114.6/$, the strongest level since October 2014; - Yields on JGBs out to ten-year maturity are now in negative territory, for the first time; - Banks, pension funds, insurers all invest heavily in JGBs; - Banks have already made big cuts in the rates they pay depositors, but are not expected to go into negative territory for households or SMEs; ​- All this means a squeeze on earnings at banks, insurers and pension funds

Kuroda Goes Negative on Interest Rates - Monetary ‘Hail Mary’

Richard Katz's February 2016 issue of the Oriental Economist

BOJ Tried a Bazooka with Negative Rates, but It's Just a Pop Gun

Followings are the key points fro this report, - BOJ tried another surprise “bazooka” but only managed a pop gun - Will apply a “negative interest rate” of 0.1% on new deposits of “excess reserves” held by banks at the BOJ - Hope is that it will get banks to lend more and thereby boost company investment and consumer spending ​- It won’t work: problem is not banks unwillingness to lend, but business/firm unwillingness to borrow

Raising Profits without Raising Sales - What's the Bottom Line?

Japan’s firms, particularly its 5,000 largest firms, have mastered the art of producing growth in profits without growth in sales. They’ve done this by cutting costs, particularly labor costs.