Wednesday19 February 2020 ★ FINANCIAL TIMES 3
overallfiscalcontractionunderMrAbe.
Paul Krugman, the economist,
described the tax rises as examples
of “destructive austerity policies”.Con-
sumption was barely any higher in the
final quarter of 2019 than it was in the
same period of 2012, when Mr Abe won
the election, and inflation has never
comeclosetotheBoJ’s2percenttarget.
“I hesitate to say that the VAT hike
was a mistake,” said Mr Adachi, arguing
that Mr Abe had little alternative given
Japan’s long-term fiscal trajectory. Ms
Taguchi spoke for those in Japan who
think greater deregulation is needed
when she said: “The big failure of Abe-
nomicswasonstructuralreform.”
MrAbeisexpectedtostepdowninthe
nextfew years and will leave behind a
difficultchallengeforhissuccessor.This
willbewhethertomountonelaststimu-
lusoracceptJapan’scurrentgrowthper-
formanceisasgoodasitwillget.
Editorial Comment age 8p
Thereislittledoubt,however,thatthe
latest fall in output is another blow to
Mr Abe and Mr Kuroda’s plans for Japan
to escape the “lost decades” of stagna-
tion and falling prices that followed the
stockmarketbubbleburstingin1990.
The idea was for monetary and fiscal
stimulustorevivedemandandinflation
while structural economic reforms
allowedforahigherlevelofgrowth.
Initially, it worked as intended: the
yen weakened and growth picked up.
The economy has generally been
stronger during Mr Abe’s term than in
previousdecades.Buta2014riseincon-
sumption tax from 5 per cent to 8 per
cent drove the economy into recession,
and after last year’s increase to 10 per
centthereisadangerofrepetition.
To many in Japan, the tax rises were
necessary iven the fiscal deficit andg
need to pay for its ageing population,
but they have also cancelled out any fis-
cal stimulus measures and resulted in
activity in China is so low,” he said.
But Mr Adachi said he expected that
Japan could avoid a deeper downturn so
long as the virus abated by the end of
March,allowingforareboundinChina’s
economy. “Moreover, I would argue the
[Abe] government will definitely step
upwithmorefiscalstimulus.”
Mr Abe has repeatedly launched
spending packages when the economy
weakens, buttiming is a problem in this
instance because the government’slast
stimulus as only just beenh approved ni
the Diet.Even if the prime minister
acted straight away, itwould probably
take months to compile and pass
anotherround.
“So far, none of last year’s stimulus
has taken effect. The first thing to con-
sider is accelerating that spending,” said
HarumiTaguchi,principaleconomistat
IHS Markit in Tokyo. That leaves any
possible action to the Bank of Japan,
where governor Haruhiko Kuroda has
already cut overnight interest rates to
minus 0.1 per cent and has been reluc-
tant to do more for fear of negative side
effectsonthebankingsystem.
In an interview with FujiSankei Busi-
nessyesterday, Mr Kurodasaid the
virus was “the biggest source of uncer-
tainty for Japan’s economy” but insisted
therewaslittlechanceofgrowthin
falling far below 2019. He also repeated
the central bank’s boilerplate phrase: it
would launch further easing “without
hesitation”shoulditprovenecessary.
R O B I N H A R D I N G— TOKYO
In 2013, new Japan prime minister
Shinzo Abe delivered hisfirst policy
address, vowing to revive economic
growth and end two decades of on-and-
off deflation. He planned to achieve this
with the “three arrows” of Abenomics:
bold monetary easing, flexible fiscal
policy and a reform strategy to revive
privateinvestment.
Sevenyearsonhehaslittletoshowfor
it. Following October’s rise in value
added tax, Japan revealed on Monday
that gross domestic product shrank at
an annualised rate of 6.3 per cent in the
finalquarterof2019.
With the economy suffering a fresh
shockfromtheoutbreakofcoronavirus,
most analysts think atechnical reces-
sion defined as two consecutive quar-—
tersofdecliningoutput—isprobable.
The big questions are whether a tech-
nical recession could turn into a deeper
downturn; whether there is anything
the government and the Bank of Japan
candoaboutit;andwherethisleavesMr
Abe’s ambition to revive Japan’s econ-
omy as the prime minister’s own time in
officedrawstoaclose.
Masamichi Adachi, UBS chief econo-
mist, saidlatest growth numbers were
“very weak, dismal, shockingly bad”
andshowedtheeconomywasstruggling
evenbeforethevirusstruck.
“Japan will definitely suffer from a
plunge in inbound tourism and from
weaker goods trade given the level of
I N T E R N AT I O N A L
Abenomics on
trial as Japan
prepares
for recession
Prime minister has little to show after
seven years of his ‘three arrows’ policy
Extra purchases:
customers buy
alcohol ahead of
last year’s rise in
consumption
tax to 10 per
cent, in
Kashiwa,
near Tokyo
AsahiShimbun/Getty
‘Japan will
definitely
suffer from
a plunge in
inbound
tourism
and from
weaker
goods trade’
L AU R A P I T E L— SILIVRI, TURKEY
A Turkish court has acquitted a jailed
philanthropist and businessman in a
surpriseverdictattheendofatrialthat
had become a symbol of a crackdown
on freedom under the watch of Presi-
dentRecepTayyipErdogan.
However,prosecutorslaterissuedanew
warrant for the arrest of Osman Kavala,
throwing doubt over whether he would
bereleased.
The packed courtroom at Silivri high
security prison erupted into cheers as a
panel of judges announced not guilty
verdicts for 63-year-old Mr Kavala and
eightothersonchargesofseekingtovio-
lentlyoverthrowthegovernment.
Mr Kavala, who has spent the past
840 days in jail, waved to supporters as
he was taken away by gendarmes. His
wife Ayse, an academic who was watch-
ingfromthepublicgalleryatthebackof
the vast courtroom, looked stunned as
shewasembracedbyfriends.
“We are extremely pleased that
Osman Kavala will be released from
prison but that will not get him back the
two years that have been stolen from his
life,” said Emma Sinclair-Webb, the
Turkey director of Human Rights
Watch, before the issue of the new war-
rant.“This was a trial that should never
havehappened.”
The case centred on the “Gezi park”
protests that swept Turkey in 2013,
which Mr Erdogan had sought to
present as an international conspiracy
tobringdownhisgovernment.
The Turkish president accused Mr
Kavala of financing the demonstrations
—whichhadbegunasanenvironmental
protest — and claimed that he was sup-
ported byGeorge Soros, the billionaire
financier, whom Mr Erdogan has called
“thatHungarianJew”.
Mr Kavala and the other defendants,
denied the charges. The case drew
heavy criticism from Turkish opposi-
tiongroupsandEuropeannations.
Protests trial
Philanthropist
in Turkey
‘Gezi park’
case acquitted