Abenomics: Japan’s Dangerous Experiment

Abenomics: Japan’s Dangerous Experiment

 
Shinzō Abe, Japan’s prime minister, set out in early 2013 to rejuvenate Japan’s struggling economy with a $116 billion stimulus package, structural reforms, and $1.4 trillion of very loose monetary easing.

In anticipation of the effects, Japan’s stock market surged. By May 2013, the stock market had risen by 55%, but these early indications turned out to be premature.

Up until this point, it seems that Abenomics has not done much for the real growth of Japan’s economy, despite temporary boosts that were a consequence of optimism. As Bloomberg columnist, William Pesek, puts it, “so far, Abenomics has meant lots of stimulus and no deregulation, a recipe that has boosted inflation more than growth or confidence.”

Another problem: the Japanese economy shrank by 6.8% during Q2 on an annualized basis. This was the direct result of a drop in consumer spending (~5% drop), brought on by an increase in sales tax. Japanese consumers scrambled to buy and hoard in Q1, before the new tax kicked in and cost of acquisition rose by 3%.

Abenomics has so far been a disappointment. The world’s eyes are on Japan and we’re rooting for them. After all, the nation is the world’s third largest economy and global economics is an interdependent ecosystem.

Original infographic from: UK Saxo Markets