Japan Is First To Panic; Won’t Be The Last

The most widely-reported result of the recent G-7 meeting was Japan’s attempt to convince the other major economies to admit that a crisis is imminent and take appropriately radical steps. The response seems to have been a bunch of blank stares. As India’s Business Standard noted:

G7 pact offers minimal cover for Abenomics reset

A Group of Seven compromise offers minimal cover for Shinzo Abe. The Japanese prime minister’s plan to revitalize the world’s third-largest economy needs fresh impetus. Abe didn’t get as much international backing as he might have liked from hosting the rich nations’ club. But, the summit communique can, just about, be spun his way.

Abe’s counterparts, understandably, do not share his view that the world risks another Lehman Brothers-style financial crisis. That is important because Abe has inexplicably committed to raising the country’s sales tax next April, a surefire way to choke off recovery – unless a shock of this scale emerges.

So Japan — which, remember, has already borrowed eye-popping amounts of money, increased its central bank balance sheet by more as a percent of GDP than have either the Fed or ECB, and pushed interest rates on most of its government bonds into negative territory, all to no avail — has decided to act on its (manifestly justified) sense of panic by starting a new round of deficit spending:

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