The Abenomics arrows
Abenomics grinds on. Bloomberg has just put out a new report on the state of Japanese prime minister Shinzo Abe’s project to revive his country’s economy and concludes that “the record is mixed.” “Inflation is up, though import prices rather than wages account for the bulk of the increase. A skeptical public remains unconvinced that long-term prospects are brighter.” Japan is a little over 18 months into Abenomics, and two of the three “arrows” — fiscal stimulus and monetary easing — have been deployed. Barry Ritholz thinks they’ve already been pretty successful so far: “deflation is being replaced by inflation; profits and investments are both increasing for Japanese companies; and the Nikkei 225 is up considerably.”
However, there’s plenty to be worried about. Back in April, Japan raised the consumption tax to 8% from 5% — the first hike since 1997 (which threw the economy into a tailspin). It was supposed to be “the fatal flaw in Abenomics,” according to theEconomist, but “the early signs are that a preternaturally lucky Mr Abe has got away with it.” However, the Japan Times writes today that the economy has taken a significant hit after the tax hike: average household consumption is down, wage growth is below inflation, corporate capital investment hasn’t made up for the fall in household consumption, and export growth is sluggish.
Joseph Sternberg at the WSJ is not quite optimistic about the future of the Japanese economy after the tax hike, but points out there are reasons to think it could be different this time around. “Japan is not in the throes of a banking crisis, as it was in 1997. Asia doesn’t appear likely to suffer a general financial meltdown of the sort that exacerbated an already weakened Japan’s sluggishness the last time around.”
The last, substantive structural reforms to help end boost long-term growth, were just announced a few weeks ago and will take longer to assess (the first two were “designed to buy time for the third arrow,” says the Bloomberg report). It gets at the heart of Japan’s sluggish growth: lack of corporate flexibility (it’s almost impossible to fire someone), high corporate tax rates, problems with the health care and agriculture industries, and a lack of women in the workforce. Earlier this year, Michael Arnoldquoted a Barclays Capital research report saying “If Abenomics’ Third Arrow works, its implications for Japan’s economic outlook and asset prices are extraordinary.” —Shane Ferro
On to today’s links: