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Low – deflation Japanese economy “losing momentum”—rising deflation

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Low – deflation

Japanese economy “losing momentum”—rising deflation

Chandler 7/16 (Marc—global head of currency strategy of Brown Brothers Harriman, contributing economic editor for Active Trader Magazine and to TheStreet.Com, former chief currency strategist for HSBC Bank USA and Mellon Bank, “Friday in Currencies: Euro Rate Squeeze, U.S. CPI and Japan's Woes,” 7/16/10,
Even if one makes allowances for the impact of the weakness in the housing market, nearly every inflation gauge is at undesirably low levels that are arguably too close to deflation. This is rivaling the slowing economy as a major talking point. Look for Bernanke to be peppered with questions in next week testimony about how the Fed can combat deflation and avoid Japan’s fate. Japan reported a somewhat larger than expected 0.9% decline in the May tertiary index. The decline warns that the Japanese economy may be losing momentum as the second quarter progressed. This will likely be reflected next week with the all-industries activity index contracting against after the 1.8% rise in April. Often over the past couple of years, the first month of the quarter is the strongest. This pattern is likely to be repeated. The consumer remains constrained and June department store sales fell 6% after a 2.1% decline in May.

Low – unemployment

Japanese economy low—unstable jobs, declining income, high unemployment

Kingston 7/9 (Jeff—director of Asian studies at Temple University, Japan and author of Contemporary Japan: History, Politics and Social Change since the 1980s, “Can Anyone Govern Japan?” 7/9/10,
What's happening to Japan is bigger than Kan the man. After a series of short-lived, ineffectual leaders, many are wondering if the country itself has become, in essence, ungovernable. Kan is an astute politician with considerable skills, and voters seem to like his tough-love message for kick-starting the economy. Many agree with him that the old policies of vast public-works spending and deregulation have not worked and have instead left the country saddled with debt amounting to a whopping 200 percent of the country's annual GDP. But voters are still skeptical that Kan can make real change. And what it boils down to is a loss of faith in political leaders after two decades of recession and growing social malaise. In an atmosphere where leaders are expected to fail, can anyone run Japan? Kan got off to a bad start with the electorate when he proposed raising comsumption taxes -- rarely a smart political move. Yes, polls show that the public is ready for an increase in consumption taxes, and media editorials supported the idea. But when Kan outlined his proposal, calling for a doubling of the consumption tax from 5 to 10 percent, he got nailed. As the prime minister was dragged into a debate about the details of his plan, he backtracked and zigzagged, looking far too much like his aimless predecessor. Hatoyama met his downfall for exactly this sort of flip-flopping, over a plan to relocate the Futenma U.S. military base away from Okinawa -- and just about everything else. Japanese voters are searching for a resolute leader in the mold of Junichiro Koizumi, prime minister from 2001 to 2006. So far, Kan looks like yet another waffler. Japan's leadership crisis couldn't come at a more inopportune time. This election is going to be about bread-and-butter issues such as unstable jobs and declining household income. The ruling Democratic Party of Japan (DPJ) has drawn attention to the swelling ranks of the precariat -- workers without secure jobs, decent wages, or benefits -- who now make up 34 percent of the workforce. Unemployment, at 5.2 percent, is quite high by Japanese standards, where 2 percent is the usual benchmark. The DPJ argues that the government can best address this issue, channeling tax revenues into expanded social programs. The next two most popular parties, the Liberal Democratic Party (LDP), which dominated Japanese politics for more than five decades, and the upstart Your Party want the government to get out of the way -- they argue that deregulation, more flexible labor laws, and lower corporate taxes will generate growth, profits, and better jobs.

Low – debt

Japanese economy tanked—massive debt

Buerk 7/12 (Roland—reporter for BBC News, “Poll Blow Raises Japanese Economic Fears,” 7/12/10,
His Democratic Party of Japan (DPJ) and its tiny coalition ally lost their majority in the upper house of parliament. Japan has already suffered two decades of economic stagnation; now it faces political stagnation too unless Mr Kan can persuade small parties to help him pass laws. Worse, this election may well have put paid, for now, to any thoughts of tackling Japan's massive public debt. It is already nearly twice the size of the economy's annual output, and growing. This year the government expects to borrow around as much as it raises from taxes. The prime minister had argued that without action the country faced a Greece-style meltdown and he suggested doubling sales tax to 10%. During the latter stages of the campaign Mr Kan rowed back, saying any tax increase would not come for several years. It may be that it was the appearance of dithering and weak leadership that turned voters against the prime minister. But the message being digested by Japan's politicians is that talking about austerity is poison at the ballot box. Opinion is divided about the threat posed by the country's debt. Many feel Mr Kan's warnings of an impending crisis may have gone too far because 95% of the government's bonds are held by Japanese savers and institutions. They are much less likely to cut and run than the foreign creditors to which many other countries owe money. But doom-mongers argue that as Japan's population continues to age the savings rate is likely to decline further, forcing Japan eventually to borrow more from abroad. The higher interest rates demanded could make servicing the debt unsustainable, tipping the country into the abyss. What is not in doubt is if the crunch comes it would dwarf the problems posed by Greece. Japan is the world's second biggest economy, and in a crisis could be expected to draw in its resources, massive corporate investment abroad and a huge stake in the debt of the US government.

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