What "Abenomics" means for Japan
17 June 2013
News, Asia, Global, Japan
By Asia Asset Management
Second time-around Prime Minister Shinzo Abe has ignited interest in Japan with his economic policy agenda dubbed "Abenomics", said an article published by Standard and Poor’s Ratings Services on June 12 entitled All You Need To Know About "Abenomics".
Mr. Abe regained the leadership of the Liberal Democratic Party (LDP) last September and then, campaigning on a platform of policies to revive the Japanese economy, led the LDP back into power in a landslide victory in last December's general election.
In an allusion to a Japanese fable, Mr. Abe has marketed his economic policy programme as having three "arrows": a plan to end deflation and combat the strong yen; "flexible" (that is, somewhat expansionary) fiscal policy management for two to three years; and a growth strategy, centering on deregulation and attempts to promote innovation and improve industrial competitiveness (structural reforms).
"Abenomics" is a conventional policy mix: it aims to end deflation and arrest the decline in Japan's real growth potential.
"The radical part is that Mr. Abe and the new governor of the Bank of Japan have overturned the previous BOJ orthodoxy that held ending deflation hostage to pursuing structural reform," said Paul Sheard, Standard & Poor's chief global economist and head of global economics and research.
The stated goals of "Abenomics" correspond to the conditions stipulated in last August's consumption tax legislation as needing to be satisfied for the tax rate to be doubled, to 10%, by October 2015.
"The Abe administration's push to end deflation could either be the real deal or a sophisticated fig leaf for justifying the consumption tax hikes," said Mr. Sheard. "If the former, a strong case can be made for delaying the implementation of the tax hikes until the economy has reflated; if the latter, the attempt to end deflation could yet be stymied."
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