'Abenomics' scheme to save Japan's economy
Country’s leader gives his name to an ambitious plan to end 15 years of deflation and recession
They call it Abenomics, a “Big Government” plan named after Japan’s Lazarus-like Prime Minister, who has returned from the political dead to fix his country’s broken economic engine.
Yesterday, Shinzo Abe’s most ambitious bid to pull the world’s third-largest economy out of its long slide was unveiled: a Bank of Japan (BoJ) scheme to expand the country’s money supply by a staggering ¥60 trillion to ¥70trn (£415bn to £484bn) a year.
The plan is one of the biggest gambles in modern politics. If it works, Mr Abe and the new BoJ governor, Haruhiko Kuroda, will go down in history as the men who finally ended 15 years of corrosive deflation and serial recessions. Failure will send Japan’s public debt, already the worst in the developed world, spiralling even higher. Deflation means businesses do not invest and consumers do not spend, trapping the economy in a doomed cycle, said Mr Abe this week in a primer speech for the BoJ announcement.
“If prices don’t go up, wages don’t go up. If people believe prices will be higher six months from now, then they will believe it’s best to buy now rather than later,” he said.
The Prime Minister handpicked Mr Kuroda after widespread criticism that Japan’s central bank had not done enough to end this deflation. Yesterday the governor in effect pledged to soak the Japanese economy in money, doubling its inflation target to 2 per cent in the next two years.
“The previous approach of incremental easing wasn’t enough,” Mr Kuroda said. “This time, we took all necessary steps to achieve the target.”
He and Mr Abe are betting that this shock treatment will trigger a new cycle of corporate investment and economic growth. But it is very risky because it commits the bank to buying more debt – an extra ¥50trn in long-term government bonds per year. Many investors say Japan’s public debt stock of around $14trn (£9.2trn) a year is already unsustainable.
Mr Abe returned to power for a second time in December armed with what he called three policy “arrows” – fiscal, monetary and reform for national growth – to fire into Japan’s anaemic economy.
An eye-popping ¥10trn fiscal stimulus package has cheered up Japan’s huge construction sector. His verbal bludgeoning of the yen has helped manufacturers and led to higher share prices. The stock market has fattened by more than 40 per cent since November, creating a rise in personal wealth but little tangible signs of wider economic recovery.
The first BoJ survey of business sentiment under the Prime Minister’s watch, released this week, showed the mood improving among manufacturers for the first time in three quarters. But the survey found a majority of companies still pessimistic about the future and reluctant to increase capital spending. In February, 80 per cent of companies surveyed by Reuters said they plan to keep wages static or cut them. Corporate reluctance to invest or hike wages could damage the government’s plans to reinflate the economy.
That cautious sentiment is unlikely to improve till a general election in July. The election is expected to see Mr Abe’s Liberal Democrats (LDP) take control of both houses of parliament. If he wins, he has promised to take Japan into negotiations for an ambitious pan-Asia free trade pact called the Trans Pacific Partnership. Farmers, a key LDP voting block, are digging in for a fight against the pact, along with many lawmakers in the party itself.
Mr Abe’s policy of talking down the yen, which has lost 20 per cent against the US dollar in six months, risks igniting a currency war before then.
In the meantime, all eyes will be on whether Mr Kuroda can hit his 2 per cent target without creating too much collateral damage. “I don’t anticipate big side-effects from the policies we’ve decided,” he said yesterday. Time will tell.
- 1 Home Office says Nigerian asylum-seeker can’t be a lesbian as she’s got children
- 2 What happens to your body when you give up sugar?
- 3 Japanese island overrun with cats after population explodes
- 4 Apple and Google users being spied on for a decade because of 'Freak' security flaw
- 5 Have sex with your iPad thanks to the new sex toy no-one asked for
The City of the Monkey God: Archaeologists claim to have found city lost for 1,000 years in remote Honduran jungle
Japanese island overrun with cats after population explodes
Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
Bubonic plague-carrying fleas found on New York City rats
London property boom built on dirty money
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...