With the first half of 2013 just passed since Japanese Prime Minister Shinzo Abe took over the reins of the government in January, it is worth reviewing the impact of the so-called ‘Abenomics’, especially with the Upper House elections coming up this weekend (July 20-21, 2013) which will likely end the decades-old hung parliament, and confirmed the continuity of Prime Minister Abe and his ruling party, the Liberal Democratic Party (LDP) reforms based on the concept of ‘Three Arrows’ (Fiscal, Monetary, and Structural).
So far, based on the latest June 2013 economic figures, and the minutes from the latest Bank of Japan (BOJ) monetary policy statements, indications are pointing to growth at a modest pace. The Nikkei 225 index (one of the leading stock indices in Japan) has increased approximately 40.0 to 41.0 percent on a year-to-date (YTD) basis, and industrial production numbers have also surged as a result of the weakened Japanese Yen currency. The Japanese Yen currency has been hovering in the 99.00 to 101.00 range to the US Dollar, and several analysts have called for further weakening of the Japanese Yen currency to be continued into the end of this year and perhaps 2014. The ranges of forecasts vary from 102.00 to 105.00 to the US Dollar. However, such levels of the Japanese Yen currency have so far not breached yet, although several policy makers and analysts did indicate that ongoing reforms takes time, especially on the structural side of the overall ‘Abenomics’ policy making.
There have been various views being raised by many countries’ finance ministers on the weakening of Japanese Yen currency going forward will have on their economies, and it has become of the top agenda items in the upcoming G-20 Group of Finance Ministers meetings, which are scheduled to be held this week. In a Bloomberg Television broadcast in Singapore on July 18, 2013, Japan’s Deputy Economy Minister, Yasutoshi Nishimura spoke about some of Prime Minister Abe’s economic policies aimed at revitalising Japan. He mentioned that the current policy direction of having a weakened Japanese Yen currency is on track, but insisted that the weakening Japanese Yen currency is not the ‘target’ of Prime Minister Abe’s government, but a ‘direct result’ of the policies, namely the effectiveness of those ‘Three Arrows’. He later on explained that there have so far not been any dissatisfaction, or massive criticisms directed at the Japanese Government as a potential ‘currency manipulator’. The Russian Finance Minister has also spoken out in support of Prime Minister’s policy directions, and he does not see a devaluation of the Japanese Yen currency will have much of an impact to the global economies. Other members within the G20 group of nations, including South Korea, which have been quite vocal of Japan’s economic policies and have urged G20 to engage actively in the discussions over the value of the Japanese Yen currency, and its long-run implications on the global economies. According to a Bloomberg.com article published on July 18, 2013, it was reported that the Bank of Korea (BOK) sees no potential risks indicating that the fall in Japanese Yen currency will have critical impact to the South Korean economy, which is a reversal of the South Korean Government’s previous statements that pointed the weakening Japanese Yen currency resulted in the lack of competitiveness of the country’s total trade flows.
Aside from the relative lack of any flare-ups over ‘Abenomics’ on the international front, the domestic front continues to face several challenges, namely in the area of fiscal and structural reforms, including taxation where the upcoming introduction of the consumption tax scheduled in 2015 to make up for the shortfall of government finances, the level of bureaucracies that are impacting several businesses, the level of public debt, and most importantly, the demographic picture in the country which is rapidly aging. The Abe government is also trying to encourage greater female participation into the workforce, where Minister Nishimura indicated in the July 18 interview that the Abe administration plans to build additional child care centres in order to provide relief for working mothers, and several other incentives that are targeted at greater household formations. All these reforms looked sensible to approach given the largely aged population and shortage of labour, but the issue has to be on societal changes, including examining the role of the typical ‘salaryman’ who works long hours, life-time employment, education, and providing tax incentives targeted at strong family bonding, flexible working hours, etc. which could create the necessary conditions needed to increase the population size.
In conclusion, I believe that Abenomics will continue to keep sceptics guessing the impacts to the Japanese economy as there have been many failed economic policies being implemented by past administrations, however, with the recent noticeable signs of growth in Japan, it might be worth taking a hard look at the ongoing progress being shown by Prime Minister Abe and his Cabinet in pushing the reforms through.