On the final day of trading 2013, Japanese shares closed with an annual gain of 57 percent the highest ever since 1972. That this occurred this year is no coincidence - Shinzo Abe's three-pronged strategy for Japan's economy dubbed "Abenomics" is working. For now.
After Japan's "lost decade" puzzled economists for years, Shinzo Abe in his second term as Prime Minister, with Bank of Japan Governor Haruhiko Kuroda, demonstrated that Japan hadn't in fact tried everything in its economic toolkit. The surge in Japan's equity markets this year was largely driven by a renewed inflow of foreign capital, bullish on the prospects of Abe's economic policies.Fortune hasn't been kind to Japan in recent years - the nascent signs of economic recovery in 2008 were dashed by the housing bubble bursting in the United States that turned global finance topsy-turvy. Japan suffered a 0.7 loss in real GDP that year and faced a catastrophic contraction in 2009 when it suffered a staggering 5.2 percent loss in real GDP. After the DPJ came to power, poised to turn Japan's economic fortunes, there was little in the way of an economic breakthrough as the Bank of Japan refused to behave boldly. After the Tohoku Earthquake and the ensuing disaster at Fukushima in March 2011, Prime Ministers Naoto Kan and Yoshihiko Noda were left as economic lame ducks, ultimately leading to Abe's return at the end of 2012.
At its core, Abenomics worked in Japan because it addressed Japan's low nominal growth rate as the disease inhibiting the growth of demand. Furthermore, it recognizes that boosting nominal growth will allow Japan to eventually shed its immense public debt, which was accumulated over 20 years of economic sclerosis and stagnation. Abe and Kuroda were able to address the average Japanese consumer, the national public debt, and woo foreign investors in one fell swoop.
If Abenomics succeeded in 2013, its success may likely have been a fluke. After Abe appointed Kuroda, the pair set out into uncharted waters, determined to bring Japan back on top. Abenomics emblematizes the sort of Keynesian demand side approach to macroeconomic policy that was long necessary in Japan but either political unfeasible or perceived as too risky. As someone who intermittently visited Tokyo twice a year for the past three years, Japan's economic transformation is palpable and frankly remarkable given the time frame. That the yen's depreciation against the U.S. dollar (around 25 percent in 2013) jump-started consumer spending can't be denied.
Source: The Diplomat
At its core, Abenomics worked in Japan because it addressed Japan's low nominal growth rate as the disease inhibiting the growth of demand. Furthermore, it recognizes that boosting nominal growth will allow Japan to eventually shed its immense public debt, which was accumulated over 20 years of economic sclerosis and stagnation. Abe and Kuroda were able to address the average Japanese consumer, the national public debt, and woo foreign investors in one fell swoop.
If Abenomics succeeded in 2013, its success may likely have been a fluke. After Abe appointed Kuroda, the pair set out into uncharted waters, determined to bring Japan back on top. Abenomics emblematizes the sort of Keynesian demand side approach to macroeconomic policy that was long necessary in Japan but either political unfeasible or perceived as too risky. As someone who intermittently visited Tokyo twice a year for the past three years, Japan's economic transformation is palpable and frankly remarkable given the time frame. That the yen's depreciation against the U.S. dollar (around 25 percent in 2013) jump-started consumer spending can't be denied.
Source: The Diplomat
