Japan recession calls for desperate measures

A much maligned sales tax has been put on the back burner as Japan’s PM calls for dissolution of government.

Japan’s Prime Minister Shinzo Abe has called for an early election in order to garner public support and tighten his grip on power over an opposition party struggling to keep up a united counter front.

Abe’s much talked of strategy to revive a flagging Japanese economy, “Abenomics”, has failed to hit the ground running and the country’s growth has continued to stagnate.

He announced in a press release last week that he would “dissolve the lower house as of the 21^st,” and added that he “needs to know the population support our economic plan. If we are voted down then our Abenomics are clearly an unwanted reform.”

Expert financial spectators are admiring the move and say the PM wants to eliminate any possibility of political instability before proceeding.

“Japan is a far cry from the times when there would be a change of PM whenever the wind turned direction,” said Tony Harris, Senior Vice President of Equity Trading at Softbank CIBC International.

“Abe is looking to solidify his position just in case public opinion moves against him as he puts his Abenomics into fourth gear,” he added.

Not the desired result

The plan, by the previous administration, was for a jump in sales tax to curtail Japan’s massive public debt; however the policy had a disastrous side effect.

Japans consumers simply stopped buying on the high street, and the government never got its income boost.

Data is now showing that Japan, the world’s third largest economy, is in the grip of a recession.

In response to that, Abe’s popularity has waned and opinion polls now have him at just 50 percent, his lowest level since he was elected prime minister two years ago, a factor that has forced him to call for the election early.

Danger of “mini-recession” as German growth goes soft

After being let off the hook in the third quarter of this year, experts are predicting the German economy will enter a trying period as growth has dipped to its lowest ebb for one and a half years.

According to Markit Economics, a leading provider of global financial information, a purchasing gauge for manufacturing and services fell to 51.6 at the end of last month compared with 51.8 in December.

A measure for factories jumped to 51.3 from 49.4 marching across the 50 point mark that technically defines a contraction of the economy. A similar service gauge fell.

Europe’s biggest economy appears to have had a mediocre end to the year but economists at the Bundesbank are optimistic for the future. Asset purchases by Europe’s central bank could increase in response to lack of growth in the euro zone as a whole and minimal inflation.

Other observers in the field are more cautious. James Coleman, Managing Director and co-head of Portfolio Trading at Softbank CIBC International said “When you look at the most recent reports, the GDP growth looks extremely soft. If the figures continue to go this way then the start of next year could usher in a time of mini-recession”

Coping with competition

Another factor clarified by the report was the seeming slide in profits from major companies for the second month in a row, who have cited a decrease in capital investment and a jump in competition from smaller firms.

The European Central Bank (ECB) will be looking to boost the economy with major asset purchases and a spokesman said that “everything apart from gold” is being considered. Partnered with this stimulus will be the welcome oil price decreases which will offer some mild relief for German consumers.

Data for France and the euro zone itself will be released today, and economists are expecting a similar pattern as they have seen in the German reports.