On October 25, 2013, the Japanese government released the country’s consumer inflation measure, showing a 0.7 percent increase, in line with most of the economists’ estimates. The figure is excluding food, and energy costs. It was a fourth straight gain this year. However, the consumer price increases have so far not resulted in wage growth, which continues to be stagnant, despite the rise in the inflation numbers. In reaction to the data release, the Nikkei 225 Index futures prices were pointing to lower start during the early Asian morning trading hours.
Given the various positive directions of the Japanese economy, an assessment on the state of ‘Abenomics’ is warranted. During the past few weeks since the announcement of the planned hike of the consumption tax to 8.0 percent from the current 5.0 percent by April 2014, there have been several economic data releases and Bank of Japan (BOJ) monetary policy statements that suggest somewhat of a mixed picture on the growth of the economy in Japan. Prior to the latest consumer price data release on October 24, 2013, readers might recall that on Monday, October 21, 2013, the Japanese government released its external trade figures which showed some disappointment as actual figures came in at a negative trade balance of Japanese Yen (JPY) 932.15 billion, versus the consensus estimate of negative JPY 920.00 billion. Imports rose to JPY 16.51 billion, versus consensus of JPY 20.00 billion, while exports rose to JPY 11.46 billion, versus consensus of JPY 15.60 billion. All these figures resulted to an actual trade deficit of approximately JPY 5.00 billion. Given the lacklustre trade figures, the Japanese government is hoping to accelerate the ongoing talks on ratifying Trans Pacific Partnership (TPP) Agreement, and is expected to provide several benefits for Japan as it tries to get out of its decades old recession.
However, the efforts on ratifying the TPP talks have been on challenged by several farm lobbying groups which opposed Prime Minister Shinzo Abe’s continuing push towards the implementation of the TPP due to the various protective tariff measures that these farmers currently enjoy. Based on a quote by one of the Bloomberg journalists during the Asian morning trading hours speaking to a Japan-based economist, those protective tariffs applicable to agriculture, namely rice, amounted to approximately an average of JPY 700.00 billion, which is quite a substantial amount of tariff protection that these farmers enjoy. However, the economist pointed out that despite the growing concerns expressed by many Japanese farmers, he believes that the practice of doling out generous farm-related subsidies is expected to be placed in the last item of the agenda for discussion as Japan seeks to ratify the TPP agreement with the rest of the group countries. The Prime Minister firmly believes that ratifying the TPP agreement is one of viable alternatives that could propel Japan’s overall growth further, as the size of the trading partners grow, there could be additional opportunities for Japanese and international corporations to invest in various sectors of the economies within and outside the grouping.
On the whole, despite the mixed picture regarding the direction of the Japanese economy, I believe that Prime Minister Abe’s ‘Three Arrows’ policy (Fiscal, Monetary and Structural) continues to ‘chug’ along well ahead of many market expectations. The Prime Minister has also received parliamentary approvals to start reducing corporate taxes, and implementing various fiscal policies that are key antidotes needed to revive the economy. So far, much of the fiscal front and monetary policies have put in place resulting in various improvements in the growth measures and results needed to propel the economy. However, I believe that there is one item in Prime Minister Abe’s ‘Three Arrows’ policy that has shown some lagging improvement, or minimal progress, and that is the issue of structural reforms. Some of the structural reforms that Prime Minister Abe is urgently seeking to resolve are the labour reforms, and tackling the growing greying population in the country. So far, these two items have not been on the forefront of much of the economic results shown in the country. One of the reasons could be the length of time required to understand the various concerns expressed by the Japanese people, and co-ordinating with various government agencies, and the private sector in order to introduce reforms that is purposeful, and create an impact on the country’s economic growth path. It is essentially work-in-progress for now, and market observers are expected to be keenly following any developments.
In conclusion, I believe that Abenomics is generally working well, and has gained much progress. The September 2013 announcement of the hosting the Olympics in 2020 in its capital city, Tokyo, is one of the most significant events that Japanese people have come to know of, apart from winning the World Cup qualifying berth in Brazil next year, and it serves as a morale booster hardly felt since the earthquake/tsunami disasters in March 2011. The Japanese people generally feel confident in the outcome of Prime Minister Shinzo Abe’s economic planning policies, and are willing to be supportive of his handling of the country’s economic well-being. However, it still remains a question mark come next year whether the implementation of the consumption sales tax hike will be widely embraced by the Japanese consumers, and will it derail the entire growth direction of the Japanese economy for many years to come.