Published on August 15, 2019.
Based on economic indicators presented by former Bank of Japan Deputy Governor Norihisa Iwata in the August issue of Voice, this essay compares the Democratic Party administration period with the five years of Abenomics.
It highlights improvements in corporate profits, unemployment, job openings for regular employees, real employee compensation, and real GDP, while arguing that the 2014 consumption tax hike cooled personal consumption and prevented Japan from achieving the 2 percent inflation target.
Amid expected export instability caused by the U.S.-China trade war, it calls for postponing any consumption tax increase until Japan has fully escaped deflation.

August 15, 2019.
Corporate earnings and the ordinary profit-to-sales ratio rose from 4.9 percent to 7.9 percent.
The unemployment rate fell from 4.3 percent to 2.8 percent.
The effective job openings-to-applicants ratio for regular employees in private companies rose from 0.5 percent to 10.9 percent.
The growth rate of real employee compensation rose from 1.3 percent to 4.2 percent.
Even without that, exports are expected to become unstable because of the U.S.-China trade war, so is it really acceptable to adopt a policy that cools domestic personal consumption?
This is a chapter I published on August 14, 2018, under that title.
The following is the continuation of the previous chapter.
●Clearly state that the tax hike will be postponed until Japan escapes deflation.
When encouraging companies to return production to Japan, the first thing that should be reviewed is fiscal policy, especially the consumption tax.
Norihisa Iwata, former Deputy Governor of the Bank of Japan, created a table in the August issue of Voice comparing the period of the Democratic Party administration with the five years of Abenomics based on economic indicators.
According to it, corporate earnings and the ordinary profit-to-sales ratio rose from 4.9 percent to 7.9 percent.
The unemployment rate fell from 4.3 percent to 2.8 percent.
The effective job openings-to-applicants ratio for regular employees in private companies rose from 0.5 percent to 10.9 percent.
The growth rate of real employee compensation rose from 1.3 percent to 4.2 percent.
The average annual increase in real GDP nearly doubled, from 3.39 trillion yen to 7.982 trillion yen.
In other words, under Abenomics, money circulated through the market, corporate performance improved, the unemployment rate fell because of labor shortages, the effective job openings-to-applicants ratio jumped, employees’ real income increased, and the nation’s gross production also doubled.
Nevertheless, the reason the 2 percent price target has not been achieved is that the consumption tax was raised.
Former Deputy Governor Iwata points this out as follows.
“The 2014 consumption tax increase from 5 percent to 8 percent caused greater damage than the 1997 increase from 3 percent to 5 percent.
That is because, in Japan, as a result of deflation continuing for 20 years, the number of non-regular employees and low-income earners increased.
The 2014 increase directly struck the household finances of the people most vulnerable to a consumption tax hike.
This adverse effect is still lingering today.”
The consumption tax hike directly struck household finances and suppressed personal consumption.
Former Deputy Governor Iwata argues that “unless there is confidence that even if consumption cools because of a tax increase, Japan will not return to deflation, the consumption tax increase should be postponed again.”
However, on June 15, the government made a cabinet decision on the “Basic Policy,” which stated that the consumption tax rate would be raised to 10 percent from October of the following year.
Even without that, exports are expected to become unstable because of the U.S.-China trade war, so is it really acceptable to adopt a policy that cools domestic personal consumption?
Above all, if the Abe administration truly intends to promote the return of high-tech companies to Japan, I would like it to present a clear guideline stating that the consumption tax increase will be postponed until Japan has escaped deflation.