Japan Economy Shrinks the Most Since 2011 Quake Due to Tax Increase

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Abeconomics is a Hail Mary throw if there ever was one. Though many will argue otherwise there is a limit to “money printing.” Are we reaching the point where the system just starts eating itself in Japan? Very possible. If an increase in the sales tax meant to help pay for the gigantic Japanese debt does this to the Japanese economy they face a bit of a problem to say the least.  Raise taxes, reduce revenue. Looks like Tokyo is way over the Laffer Curve. (And it appears to have done it with a sales tax, not even an income tax increase.) But even getting below the curve by reducing taxes is unlikely to help much because the debt black hole must be financed somehow.

(From Bloomberg.com)

Household consumption plummeted at an annualized pace of 19.2 percent from the previous quarter, while private investment sank 9.7 percent, highlighting the damage to demand by the 3 percentage point increase in the levy.

While Abe is counting on a quick return to growth, recent data indicated the economy was still struggling in June to shake off the higher levy: production fell the most since March 2011 as companies tried to pare elevated inventories and retail sales dropped more than forecast.

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