DPJ needs popularity for sales tax hike

DPJ needs popularity for sales tax hike

TOKYO—The benchmark 10-year Japanese government bond yield fell to a seven-year low on Thursday as hopes grow that the country's new government will improve the country's finances. The 10-year yield fell 0.025 percentage points to 1.14%, its lowest level since August 2003. Analysts say many investors welcome Prime Minister Naoto Kan's proposal for sales-tax hikes to cut the government's deficit. If expectations grow that the ruling Democratic Party of Japan will win big in the Upper House elections on July 11, paving the way for tax increases, demand for 10-year bonds could keep increasing, they added. "Many vigorous discussions about consumption-tax hikes have accelerated declines in the 10-year JGB yield," Mizuho Securities senior market analyst Makoto Noji said. The DPJ-led government has pledged to balance the nation's main budget over the coming decade under its first fiscal overhaul plan approved Tuesday, and Mr. Kan recently proposed doubling the country's consumption tax rate to 10%. Such moves have driven down yields across the board. Thursday, the 20-year yield dropped 0.04 percentage points to 1.89% and the 30-year yield slid 0.045 percentage points to 1.95%. However, some traders don't expect the trend to last long, saying the Kan administration has yet to provide details of how it can accomplish fiscal reform, and it remains uncertain whether the government really can lift the sales tax. "Given that consumption tax hikes are unpopular with voters, the DPJ may lose the coming Upper House elections," a trader at a Tokyo securities house said. "If the DPJ gives up raising the sales-tax rate, skepticism about Japan's fiscal rehabilitation could grow, pushing JGB yields up sharply." Elsewhere, demand was firm at an auction of two-year notes. The government sold 2.406 trillion yen ($26.77 billion) of the 0.2% bonds with the lowest price of 100.09, in line with traders' predictions. The bonds yielded 0.154% at the lowest price, and 0.153% at an average price of 100.092.

Exts: Japan Politics – Economy

Japan economy key to global economy

Reuters 08 – [9/3/08, Saft, James, columnist, “ Japan is all too coupled with global economy”, http://www.reuters.com/article/idUSL149673720080903]

That doesn't mean necessarily that Japan is simply acted upon, a weak partner which will feel pain but not cause a lot of its own for others. Japan has been a bit of an unloved step child in the eyes of economists and investors, struggling with its own demons while being outshone by its brash and rapidly growing neighbor China. But it is also hugely integrated into global financial markets, with large overseas holdings of debt and equity, including bonds issued by Fannie Mae and Freddie Mac. A major downturn in Japan could see some of that repatriated. This would be particularly difficult for the United States, which needs not just to recapitalize its financial system but also a steady source for its debt-heavy consumer economy. "If Japan were to go into recession it would be a significant drag for the rest of the world," said Albert Edwards, global strategist at Societe Generale in London. "It would matter for commodities, it would matter for financial markets." 

Exts: Japan Politics – Climate

Upper house elections key to climate bill
Reuters, 6/24, [Reuters News, 6/24/10, “FACTBOX-Policies at stake in Japan's upper house election”, http://www.iii.co.uk/news/?type=afxnews&articleid=7958711&action=article]

TOKYO, June 24 (Reuters) - Campaigning kicked off on Thursday for Japan's July 11 upper house election that the ruling Democratic Party must win to implement policies smoothly as the government tries to rein in debt and engineer growth. Prime Minister Naoto Kan's replacement of unpopular predecessor Yukio Hatoyama this month has boosted the Democrats' chances in the poll, but doubts remain if they can win an outright majority.

Below are key policies that could be affected by the outcome of the election. Debt problems in the euro zone have turned the spotlight on Japan's indebtedness, which the International Monetary Fund put at 217.7 percent of gross domestic product last year, far worse than Greece's debt-to-GDP ratio of 115.1 percent.
Most of Japan's debt is held by domestic investors, who are less sensitive to credit ratings agency downgrades than foreign investors, but that is slowly changing as the population ages and household savings fall.

The previous administration under Hatoyama approved a 2020 goal to cut Japan's greenhouse gas emissions by 25 percent from 1990 levels, premised on an international framework in which major emitting countries agree ambitious targets. The more powerful lower house passed a climate bill including that goal and a short-list of domestic measures to achieve it, but the upper house ran out of time to enact the legislation.
The government is expected to compile a bill with the same goal and submit it to parliament after the election.

2AC Add-on: US Economy [1/2]

US can’t afford its global military commitments now – debt is increasing

Bandow, 2010 [Doug, Senior fellow at the Cato Institute and former special assistant to President Reagan; “Get Out of Japan,” June 18, Accessed online at http://www.cato.org/pub_display.php?pub_id=11928, Article also appeared on The National Interest Online]

The days when Uncle Sam could afford to maintain a quasi-empire are over. The national debt already exceeds $13 trillion. America is running a $1.6 trillion deficit this year. Red ink is likely to run another $10 trillion over the next decade — assuming Washington doesn't have to bail out more failed banks, pension funds and whatever else. Social Security and Medicare have a total unfunded liability in excess of $100 trillion. In short, the U.S. government is piling debt on top of debt in order to defend a country well able to protect itself.

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