Friday, November 21, 2014

Crib Sheet for CNBC Asia Interview on Upcoming Snap Election

- Why is PM Abe likely to dissolve parliament tomorrow?
Because he can. The opposition is in disarray, the Abe administration’s poll numbers are still reasonably good, and the prime minister can go a long ways in putting the political financing scandals behind because general elections have an ablutionary effect on miscreants—it’s called “misogi.” And postponing the consumption tax hike gives him a plausible excuse.

- Impact of the tax delay on domestic politics & economy?
Each percentage point accounts for roughly 2 trillion yen, so an 18 month delay of a 2 percentage point hike means a loss of 6 trillion yen, not counting exceptions for necessities. That’s a lot of money for me to lose, but when you’re 900 trillion yen in hock, 6 trillion does not move the needle much one way or the other. Politically, it does give the opposition a hook for negative campaigning, since they could argue that the postponement is a confession that Abenomics has had two years to work its magic —three if you remember that the second hike is supposed to come into force not now, but almost a year from now—and guess what, it doesn’t.

- Would Abe & his party survive this snap elections?
Depends on what you mean by “survive.” The majority that Mr. Abe talked about as a threshold, that’s not a low bar, that’s digging a narrow ditch in the ground and saying that he’d resign if he failed to cross it. The low bar is what the Liberal Democrats thought they’d set when they talked about a 30 seat loss max. It became a little iffier with the bad 3rd quarter figures—a technical recession?!?—but I still think they’ll clear it, since independents are more likely to abstain than to vote for an opposition in disarray.

- Outlook for the economy, with recent GDP numbers confirming that the country is in a technical recession?
You are asking a political analyst? Okay, let me give it a try. All the main components of GDP did poorly in the third quarter. The employment and investment outlook as well as one-off effects wearing off likely with regard to inventories and surely with regard to consumption, it’s hard to see a third straight quarter in the negative. After that, there’s a lot of uncertainty about China and Europe, and even South Korea—and these things matter to the Japanese economy. But in the long-run, the third arrow of Abenomics must be transformative. Now, it’s pointing in the right direction, but I’m an open-minded skeptic about its flight arc.

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