The Abenomics arrows
Abenomics grinds on. Bloomberg has just put out a newÂ reportÂ on the state of Japanese prime minister Shinzo Abeâ€™s project to revive his countryâ€™s economy and concludes that â€śthe record is mixed.â€ť â€śInflation 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.â€ť Japan is a little over 18 months into Abenomics, and two of the three â€śarrowsâ€ť â€” fiscal stimulus and monetary easing â€” have been deployed.Â Barry RitholzÂ thinks theyâ€™ve already been pretty successful so far: â€śdeflation is being replaced by inflation; profits and investments are both increasing for Japanese companies; and the Nikkei 225 is up considerably.â€ť
However, thereâ€™s plenty to be worried about. Back in April, JapanÂ raisedÂ the consumption tax to 8% from 5% â€” the first hike since 1997 (which threw the economy into a tailspin). It was supposed to be â€śthe fatal flaw in Abenomics,â€ť according to theEconomist, but â€śthe early signs are that a preternaturally lucky Mr Abe has got away with it.â€ť However, theÂ Japan TimesÂ 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 hasnâ€™t made up for the fall in household consumption, and export growth is sluggish.
Joseph SternbergÂ 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. â€śJapan 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.â€ť
The last, substantiveÂ structural reformsÂ to help end boost long-term growth, were just announced a few weeks ago and will take longer to assess (the first two were â€śdesigned to buy time for the third arrow,â€ť says the Bloomberg report). It gets at the heart of Japanâ€™s sluggish growth: lack of corporate flexibility (itâ€™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,Â Michael Arnoldquoted a Barclays Capital research report saying â€śIf Abenomicsâ€™ Third Arrow works, its implications for Japanâ€™s economic outlook and asset prices are extraordinary.â€ťÂ â€”Shane Ferro
On to todayâ€™s links: