Thomson Reuters reported on December 16, 2013 that the outcome of a recent survey conducted to coincide with the one-year anniversary of ‘Abenomics’ reviewed that there has been a mixed reaction among many corporations when assessing Prime Minister Shinzo Abe’s economic policies, including the so-called ‘Three Arrows’ (Fiscal, Monetary, and Structural). Many market observers, and economists generally agree that most of his fiscal and monetary reforms outlined and implemented have largely been quite successful, however when it comes to the structural reforms, namely immigration, expanding global trading ties with other nations, measures being introduced that revolve around the theme of encouraging marriage and formation of families, among others have so far encountered mixed results, and it is posing a challenge for the Prime Minister to push through his reform agenda in a more forceful manner that will hopefully deliver the necessary punch needed on Japan’s economic fortunes going forward.
Separately, the Bank of Japan (BOJ) released its Tankan business sentiment survey for big manufacturers during this early Asian trading morning hours on December 16, 2013 showing that for the month of December 2013, the headline number came in at 16.00, versus the consensus poll of 15.00. When one tried to dig through the numbers, the most disappointing number might be the Tankan all big capital expenditure estimate which shows a 4.60 percent increase year-on-year (yoy) during the fourth quarter of 2013, versus expectations of a 5.50 percent increase. However, using the same measure and applied it to the small manufacturers, the Tankan Survey of small manufacturers’ capital expenditure estimate during the fourth quarter of 2013 showed a year-over-year (yoy) increase of 7.90 percent, versus expectations of a 4.70 percent increase. The survey results coming from the big and small manufacturers in terms of their capital spending outlook varies quite a lot, and have shown the tremendous flexibility among small manufacturers to scale up their capital expenditure plans to cope with rising demand. However, the drop in capital expenditure spending plans among large manufacturers does pose some deep concerns over whether Japan’s economic progress might be hampered by the lack of talent, slowdown in relative productivity, and the overall external environment which has proven to be quite challenging for large manufacturers to take on larger production capacity, increase productivity among its employees, resulting in lower capital expenditure plans. The planned consumption tax increase of the current 5.0 percent, to 8.0 percent by April 2014 could also be a factor in curbing many of the business owners’ capital expenditure plans.
Coming back to the survey results, it is generally found that the impact of Abenomics have changed much of the dynamics of the country’s economic landscape, including higher inflationary conditions, and a gradual improvement in its external trade terms, courtesy of a weakening Japanese Yen currency. However certain sections of households in Japan have expressed their dissatisfaction towards some of the fiscal policy measures currently and expected to be implemented, including the upcoming consumption tax hike from the current 5.0 percent to 8.0 percent scheduled for April 2014. Others have expressed their doubts such as over certain policies, including the apparent efforts introduced in trying to revive inflation and translating the reason for such prices that pack of punch to their household budgets.
Throughout the survey period, journalists from Reuters had a chance to be invited into the manufacturing hub of Osaka, which is situated in the western regions of the country to study about the effects of Abenomics and how lives of these individuals change under Abenomics. One of the respondents, who owns and operate a manufacturing company in Daito in the Osaka Prefecture, was quoted by Reuters as saying that “We just frown when we hear Abenomics on the news over lunch. We’re not feeling any effects of it”. The owner expressed his concern, and commented that the Company is expecting a loss by the end of 2013, as it has yet seen any big manufacturers’ optimism. This is a contrast of with this morning’s BOJ monthly Tankan survey which indicate a slight improvement in general optimism among regarding small manufacturers, where the number for December 2013indicated a better than expected (-1.00), versus the consensus estimate of (-5.00).
The latest fourth quarter 2013 Tankan business survey is an indication of business sentiment on the ground. However, several issues including the lack of labour reforms necessary to encourage businesses to spend more, and contribute actively to the country’s economic progress. There is also an urgent need to liberalise its domestic economy to allow for more international participation in the economy. This measure is quite difficult to implement as Japan has not quite enthusiastic in opening up its doors to the areas such as the agricultural and rural enterprises. The Prime Minister has outlined his Cabinet’s objective of reviving economic growth levels beyond an annualised average of 2.0 percent, however, the rate of changes, especially the structural reforms that have not largely been a prominent plan featured alongside with fiscal, and monetary reforms. The International Monetary Fund (IMF) estimated that the 2.0 percent economic growth target in 2014 is achievable, provided the country tackles all the issues that stifled the economy for the past decades, including deregulation, tax and labour market reforms, and encouraging larger female workforce participation,. There are potential benefits if the Prime Minister adopts all the measures in order to try to revive the economy. However, lobbying groups will continue to press more protection, and it does pose a challenge for the Prime Minister to ensure that there could be more understanding and accepting to foreign participants.
In conclusion, the latest survey rating results do express a general optimism among businesses on Prime Minister Shinzo Abe in helping to guide the economy along on a slightly improved growth path. However, the structural reforms component of the ‘Three Arrows’ remain largely subdued, and lack of an impactful force that will help to revive and propel Japan’s economy forward. Until the Prime Minister gets his economic policies, both new and future aligned, Japan’s economy could face additional issues including the rapid shifts in the demographic landscape which stifle the rate of births, and possibly caused a retardation of economic growth due to the lack of the key ingredients needed to ensure a stable and continuous strive towards a sustained path of economic growth going forward.