Abenomics has led to a startling turn round of the stuttering economy of Japan – so are the ideas a flash in the pan or what more can the world expect from the third largest economy?
The system is based on ideas put forward by Japan’s Prime Minister Shinzo Abe to revive the nation’s economy that has stagnated for 20 years or more.
Abe beat his rivals in the race to the prime minister’s job in December’s general election and immediately triggered a series of aggressive economic policies.
Now, his ruling coalition has won the majority in Japan’s upper house, which gives Abe a stronger grip on the nation and the support to drive forward with Abenomics.
His theory is the economy is driven by three major engines – monetary policy, fiscal stimulus and structural reform.
Starting the economic engine
To start the three engines driving the Japanese economy Abenomics has called for:
- The Bank of Japan to double the inflation target to 2%.
- The Bank of Japan unveiled a massive stimulus measure in an attempt to boost growth and meet its inflation target – with Abe urging the bank to print unlimited yen to achieve growth
- The Bank of Japan is increasing the purchase of government bonds by £330 billion a year
With bank lending expanding instead of contracting, the Japanese housing market is showing signs of recovery as mortgages are more freely available and businesses are starting to borrow as credit lines ease.
The falling value of the yen is increasing exports, which in turn are fuelling output and wages are starting to rise.
The way forward
Without forgetting Abenomics is only eight months in a program of three years or more, the results are astonishing.
“The government is now discussing tax incentives to balance a rise in VAT due in April,” said Michael Wood-Martin, manager of the Henderson Japan Capital Growth Fund.
“The government also wants to bring down corporation tax to encourage firms to set up and expand. This is a Japanese government that has a looser hand on the tiller than any previous government and the prime minister has made it quite plain that he intends to go for growth.
“The stock market has benefitted with a long run of rising share prices and company profits. The outlook for the markets looks encouraging as the government has indicated a commitment to corporate growth, the value of the yen is going down and companies are restructuring to take advantage of the new environment.”
