Abenomics
‘Abenomics’ refers to the economic policies advocated by Shinz? Abe, ampoule the current Prime Minister of Japan, cialis who assumed office on the 26th December 2012. The “three arrows” of Abenomics, are symbolic of the three major components of Abe’s economic plan to reflate the economy, aggressive monetary easing, flexible fiscal policy, and structural reforms.
The First Arrow – Monetary Easing
The first arrow – monetary easing, aims to battle the fears of Japanese deflationary issues. One of the first steps that Abe took was to get the Bank of Japan, to double its inflation target to 2%. He even suggested that the bank print “unlimited yen” to help achieve its inflation target. In addition, the central bank of Japan launched its $85-billion-a-month Quantitative Easing Programme (the purchasing of Japanese Government Bonds) in April, resulting in the yields on the 10-year JGB, which are inversely correlated to the actual bond prices, to rally from 0.9% to 0.6% since May 2013. QE to this extent has so far been successful in increasing the money supply, lowering Japanese debt yields, battling deflationary risks and increasing economic stability.
The Second Arrow – Fiscal Stimulus
The second arrow of Abenomics revolves around boosting government spending to further economic growth, by implementing a dramatic fiscal stimulus package worth ¥10.3 trillion / $116 billion. Abe stated that the additional funding would be used to repair schools and roads, as well as reinforce earthquake defences. He has also said that the government will make funds available for scientific research and renewable energy. In theory, as government spending is increased, a strong increase in economic growth can also be seen, and thus policymakers are hoping that this will inspire confidence among businesses and consumers, and trigger them to start spending as well, the Nikkei 225 is up almost 45% since January 2013.
The Third Arrow – Structural Reforms
The third arrow focuses on structural reforms of key sectors such as agriculture, healthcare and energy. During the summer, Japan became the 12th member of the Trans-Pacific Partnership (TPP), a free trade agreement negotiated among the member countries. The agreement aims to foster closer ties and boost trade between the specific countries. The countries involved in the TPP have a combined population of more than 650 million people. This free trade agreement has served as a single market for many businesses in Japan. The positive effects of combining the TTP membership and a relatively weak Yen (the USD/JPY rose 10% from April-July 2012) can be illustrated by the 12.2% increase in Japan’s July exports compared with 2012.
The 2020 Olympics
Tokyo witnessed widespread celebrations last September, after Japan beat Istanbul and Madrid to host the 2020 Olympics Games. The Abe administration is highly reliant on public works spending, and Shinz? Abe, who has adopted a policy of fortifying Japan against natural disasters, can cite the 2020 Olympics as a mandate for further spending. Evidently there has been strong growth throughout the Japanese economy over the past few months, and arguably plenty more room for both short and long term growth.
– Jack Montgomery
