The Wall Street Journal Asia ran an oped by me on Shinzo Abe’s decision to delay the tax hike. For those with subs, the URL is:

http://online.wsj.com/articles/the-failure-of-abenomics
-1416246853?KEYWORDS=richard+katz

Excerpts are:

This [tax delay] is absolutely the right decision…In economic policy, doing the right things at the wrong time, or in the wrong order, can spell disaster. At some point Japan must raise taxes, although there are much better taxes to raise than the consumption tax.
But first Japan needs to revive self-sustaining growth.

The best evidence for delay is the impact of the first hike. So far this year, the consumer retrenchment has been twice as severe as at the same stage of the prolonged recession that followed the 1997 tax hike.
Spending is down because income is down.

[snip]

The alarms raised about a severe market reaction to a tax delay were just scare tactics bureaucrats used to get politicians in line. Fiscal hawks claimed that any delay would cause the stock market to crash because investors would doubt Japan’s “fiscal credibility.”
Instead, the opposite has happened: Word of a possible delay sent stock prices soaring to levels not seen since 2007. Then there was the fable from Bank of Japan Governor Haruhiko Kuroda that interest rates could spike as they did in Greece. Mr. Kuroda knows better.
Unlike the crisis countries of Europe, Japan finances its own debt, and the BOJ has proven its ability to keep interest rates down. As of press time, he has gotten the yield on 10-year Japan Government Bonds down to a near-record low of 0.48%.

Moreover, the BOJ is already purchasing so many government bonds as part of its monetary-easing policy that holdings by other investors have declined to 142% of GDP as of September from 154% of GDP before Mr.
Abe’s return to power. With its latest round of easing on Oct. 31, the BOJ plans to buy ¥80 trillion ($690
billion) per year in government bonds, almost twice as much as the national government’s annual budget deficit. So while the BOJ cries wolf about a debt crisis, it is reducing the cause of that potential crisis by buying up the debt.

Certainly, the government cannot run huge deficits forever. But Japan surely has enough time to promote a genuine recovery—which would help cut deficits—instead of strangling that recovery in its cradle through fiscal austerity.

[snip]

Mr. Abe has shown that a determined prime minister has the power to overrule the bureaucracy when he really wants to. He should put that determination on display once again and challenge both bureaucrats and domestic special interests on issues involving his “third arrow”
of structural reform….

At the root of Abenomics is a false theory that Japan’s economic malaise results from a lack of confidence produced by deflation. Mr. Abe hoped that he could solve Japan’s problems by printing lots of money to restore inflation. So when voters go to the polls …., they should ask themselves a simple question: If Abenomics is really so terrific, why has a delay in the tax hike become necessary? Healthy economies are not thrown into recession by a relatively small sales-tax hike to 8% from 5%. But Japan is not a healthy economy.
And Abenomics has not made it healthier.

[snip]

Richard Katz