Then, in early 2014, Mr Abe’s government took a calculated gamble. With the economy growing he could risk putting up taxes for the first time in nearly 20 years. Consumption (purchase) tax would rise from 5 to 8%. The tax rise was urgently needed to plug the giant hole in Japan’s public finances.
But the gamble has not paid off. Japanese consumers have stopped spending and the economy is back in recession. Why? The fall in the yen gave a huge cash windfall to Japanese exporters. But instead of increasing the wages of their employees, they have sat on the money.
The huge stock market rise only benefited a minority of rich people. 80% of Japanese people do not own any shares. Instead, their incomes are stagnant or falling, and the tax rise has made them feel even poorer. Hence they have stopped spending.