Japanese Economy Contracts Bigger than Expected 7.1% in 2nd Quarter; Really Bad Theories

By now it should be pretty clear that Abenomics is a complete failure. Abenomics did not spur lending, investment, hiring, or wage growth.

It's one touted "success" is that prices have gone up. And for cash-strapped consumers facing higher taxes, that alleged "success" is actually a disaster.

Japanese Economy Contracts Bigger Than Expected 7.1% in Second Quarter

Please consider Japan says economy contracted 7.1 percent in April-June on bigger drop in business investment.

Japan's economy contracted at a larger than earlier estimated annual rate of 7.1 percent in April-June, as companies and households slashed spending following a tax hike.

The revised data released Monday show business investment fell more than twice as much as estimated before, or 5.1 percent, while private residential spending sank 10.4 percent, in annual terms. The earlier estimate showed the economy contracting 6.8 percent.

The recovery of the world's third-largest economy has slowed following the increase in the sales tax to 8 percent from 5 percent on April 1.

Really Bad Theories

Here's a statement from the article regarding theories that caught my eye:

"Theoretically, there should be no impact from the consumption tax increase on corporate spending or long-term corporate planning, but a large number of Japanese corporations seemed to see a large impact from the hike on final demand," said Junko Nishioka, an economist at RBS Japan Securities in Tokyo.

Good grief. Nishioka has theories, but they are as sound as a home foundation in a swamp. Here's an easy to understand explanation.

Eight Point Explanation

1. Japan's sales tax increased from 5% to 8%.
2. Wages did not go up.
3. Consumers have 3% less money to spend.
4. Consumers with less money, spend less.
5. Businesses faced with a slowdown in consumer spending reduce future plans.
6. Abe plans to hike the sales tax again and businesses know that as well.
7. Business sentiment sours.
8. Japanese demographics are such that businesses already have substantial worries.

What is it about those eight points that economist Nishioka fails to understand?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com