Prime Minister Shinzo Abe Photo: REUTERS file
politics

Japan may slide toward recession as Abenomics impact fades

44 Comments
By Kaori Kaneko and Leika Kihara

Shinzo Abe may be about to become Japan’s longest-serving prime minister, but he also looks set to lead the world’s third-largest economy into a downturn, with little sign that his much-vaunted Abenomics stimulus policies will help turn things around.

The economy grew at the slowest rate in a year in the third quarter, data showed on Thursday, as the U.S.-China trade war and soft global demand took their toll on exports.

There is near market consensus that it will contract outright in October-December, as consumers take the hit from an October sales tax hike and the fallout from the trade war widens.

Analysts polled by Reuters prior to Thursday’s data expect the economy to shrink 2.5% in October-December and rebound just 0.6% the following quarter - only narrowly avoiding a recession.

“The risk of Japan suffering from recession is very big,” said Kozo Yamamoto, a ruling party heavyweight and one architect of Abenomics.

The question is, who can help Japan avoid this?

The Bank of Japan is reaching the limits of years of aggressive monetary stimulus, while the government is constrained in its spending by the biggest debt burden in the industrial world, as well as by a lack of laborers to carry out its public works projects.

Capital spending may slow down after the Tokyo 2020 Olympic Games, while the government has struggled to make progress on structural reforms.

Yamamoto suggested the answer may lie in yet more government spending.

“The government must issue more bonds for spending, which the BOJ can gobble up,” he said, adding that Abe needs to compile a supplementary budget of at least 5 trillion yen ($46 billion).

But years and years of heavy fiscal spending and central bank money printing have failed to lift inflation to the BOJ’s 2% target, and instead have left policymakers with little effective means to fight the next recession.

Since Abe came to power in late 2012, the three “arrows” of Abenomics that he outlined the following year - monetary easing, fiscal spending and structural reforms - have helped quarterly gross domestic product grow 8.6%, based on data for the July-September quarter. Exporters have posted windfall profits via a weak yen, and last year share prices hit a 27-year high.

But those effects have all petered out.

The BOJ kept policy steady last month despite growing risks from overseas, and governor Haruhiko Kuroda says that while the central bank will ease policy if needed, it must be mindful of the rising cost of prolonged easing such as the impact on bank profits.

“The BOJ is already doing massive monetary easing,” said one official familiar with the bank’s thinking. “The hurdle for additional stimulus is fairly high.”

Instead, in Japan as elsewhere, analysts are focusing on what more fiscal policy can do to spur growth.

Kuroda also suggested fiscal spending could play a bigger role in stimulating growth while the central bank keeps borrowing costs nailed to the floor.

“If the government saw the need to use fiscal policy (to support growth), a mix of fiscal and monetary policies would have a bigger impact than deploying fiscal and monetary steps separately,” he said last week.

But the problem is Japan has little room left for big, pork-barrel spending - it is already saddled with debt twice the size of the economy - and analysts doubt it would even work.

While some ruling party lawmakers have called for spending of 5-10 trillion yen in another stimulus package Abe has ordered his cabinet to put together, analysts say this may have little effect.

Since 2013, Abe has spent nearly 30 trillion yen in four such packages, and each one has brought diminishing returns.

One particular problem has been that public works projects have become hard to implement due to a growing shortage of labor - partly due in turn to Japan’s dwindling working-age population.

Of the budget money left over for fiscal 2017 - the latest year for which data was available - 60% was earmarked for public works projects, showing the impact of the lack of workers on project execution.

Critics of Abenomics say the administration has spent years attempting to reflate the economy with unconventional monetary policy, only to drag its feet on much-needed labor market reforms and steps to boost Japan’s competitiveness in technical innovation.

“Japan has immersed itself in old-style, macro-economic policies instead of trying to adapt itself to rapid changes in the global environment,” said Kouhei Ohtsuka, a former BOJ official who is now an opposition party executive.

He is particularly wary of the BOJ printing yet more money to snap up government bonds, repeating the seemingly ineffective policies of the last few decades.

“The BOJ used to fire his (Kuroda’s) bazooka years ago. Now it’s just firing blanks.”

© Thomson Reuters 2019.

©2019 GPlusMedia Inc.

44 Comments
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Analysts polled by Reuters prior to Thursday’s data expect the economy to shrink 2.5% in October-December and rebound just 0.6% the following quarter - only narrowly avoiding a recession.

“The risk of Japan suffering from recession is very big,” said Kozo Yamamoto, a ruling party heavyweight and one architect of Abenomics.

The Bank of Japan is reaching the limits of years of aggressive monetary stimulus, while the government is constrained in its spending by the biggest debt burden in the industrial world, as well as by a lack of laborers to carry out its public works projects.

Capital spending may slow down after the Tokyo 2020 Olympic Games, while the government has struggled to make progress on structural reforms.

Yamamoto suggested the answer may lie in yet more government spending.

Incredible.

8 ( +9 / -1 )

Abenomics was basically morphine injected in the arm of a terminal patient with no hopes of a recovery. Now even morphin doesn't work in masking pain.

Japan's best days are behind her; it is time to live out the last days of retirement in peace with not just oneself, but with its neighbors.

3 ( +16 / -13 )

Pessimism is about to be real in this comment section.

-11 ( +1 / -12 )

What 'three arrows?'

Unless those three arrows were graft, corruption, and brown envelopes, the only thing Abenomics did was run up debt and give money to the same favored groups that the LDPs been doing for 30+ years.

Structural reform? Don't make me laugh.

20 ( +20 / -0 )

this is news? not to anyone here I guess....

10 ( +10 / -0 )

There never was "Abenomics" it was all a dog and pony show to help enrich the 1% and make sure that anybody affiliated with Shinzo-chan would get their fare share. For the rest of us, it has been a mitigated disaster. And now all the debt buying and negative interest rates are going to swamp this country with record debt and going forward it is not going to be pretty!

17 ( +17 / -0 )

What impact!!!????

12 ( +12 / -0 )

Policy problem not Japanese problem. Japanese are smart people, but Abe was wrong to pivot away from Asia.

4 ( +7 / -3 )

There is near market consensus that it will contract outright in October-December, as consumers take the hit from an October sales tax hike and the fallout from the trade war widens.

Who would have thought...

9 ( +9 / -0 )

> this is news? not to anyone here I guess....

correct.

There is near market consensus that it will contract outright in October-December, as consumers take the hit from an October sales tax hike and the fallout from the trade war widens.

Who would have thought...

exactly.

8 ( +9 / -1 )

That's like saying: You may slide toward hangover as alcohol impact fades. Duh. So, what do you do next - keep drinking to avoid the hangover, or endure the hangover to recover from the intoxication?

Option number 1 - you endure the hangover. The economy falls into short recession, unemployment rises, demand contracts, and consumption falls rapidly as people choose to save their money until the intoxication (debt and mal-investments) is out of your body (economy). You are blamed by everybody for crashing the economy, you resign, and you never become PM again.

Option number 2 - you keep drinking. You inject another doze of QE, say this is all according to plan, everything is doing great. The new doze of alcohol gives the economy what it wants, everybody is fresh and satisfied (more intoxicated than it was before). You remain PM.

Which option do you think is more politically feasible? This is why they should be teaching basic economics 101 in school rather than history or those other BS subjects. If people were studying economics instead of history in school, our lives would've been so much better.

11 ( +11 / -0 )

Enough doom and gloom. The Olympics is just around the corner, and will provide a huge boost in construction, tourism, retail and so on. Furthermore, it is priceless advertising for Japan, and tens of millions of tourists will be flocking to Japan following the Olympics, spending huge cash.

-19 ( +4 / -23 )

If you want economic recovery, stop thinking about the capitalist class for a moment.

7 ( +7 / -0 )

Japan may slide toward recession as Abenomics impact fades

Whats this ‘may’ slide into a recession garbage? The Japanese economy has been in a recession for the past 10-15 years.

Abenomics impact is not fading. Abenomics is a huge failure. Most of the malarkey spouted never came into fruition anyway.

What were the three arrows? Addressing childcare, getting women back into the workforce and changing labor laws for equality in the workplace were one of his arrows. That never happened at all.

Increasing family payments was also one of his promises. Paying off the national debt was the purpose of the Danes tax increases, which never happened. In nearly ten years this liar has been in office the only thing he has done is to give corporations major tax cuts and he ‘urged’ companies to pass on as salary increases, which never happened.

Allow me to correct the headline:

Japan is in a recession and Abenomics is a huge failure.

11 ( +11 / -0 )

My prediction; Won't go for another term and blame the downturn on the next PM.

4 ( +4 / -0 )

1981: sounds about right..... (⌒▽⌒)

2 ( +2 / -0 )

But years and years of heavy fiscal spending and central bank money printing have failed to lift inflation to the BOJ’s 2% target, and instead have left policymakers with little effective means to fight the next recession.

Yes 2% inflation is what they need so the real value of yen as well as Japanese debt can decrease. That would mean that it's better to have debt/mortgage/ loan whatever as inflation will eat it over certain period of time. BoJ probably would like it even higher plus of course middle-class and all that grandpas and grandmas would "lose" their savings hidden under tatami mat.

Lets just hope the situation will stay under control other wise with hyper inflation there will be riots.

5 ( +5 / -0 )

I will believe the Yen to obe weak when we see $1.00 = ¥150

I have been wishing for that for years.

1 ( +2 / -1 )

The only economic stimulus any country can get is having babies. Japan is poor at having babies. No amount of economic exports can solve that problem fershur..

8 ( +8 / -0 )

Ganbare Japan,

"The Olympics is just around the corner, and will provide a huge boost in construction, tourism, retail and so on."

I think you will find that the boost in construction will already have started, and we have already seen the effect of this. We just have to imagine what the long-term effect of this construction will be. I wonder how the new stadiums and so on will be used.

I agree there will be an increase in retail spending. It will probably effect sales figures for a month or so.

It will provide advertising for Japan. Will the advertising be good or not? It may advertise the discomfort of travelling in the Tokyo area in the summer and exaggerate the overcrowding of the transportation system. We have yet to see.

8 ( +8 / -0 )

alwaysspeakingwisdom - So the world economy is slowing down and taking Japan with it and its Shinzo Abe's fault? 

NO! It is Abe’s fault that his three arrows of economic recovery ‘Abenomics’ are a huge failure due to not instigating them. That is Abe’s fault!

10 ( +10 / -0 )

Germany Barely Avoids Recession, Economy Remains Stagnated

The US economy may not grow at all in the 4th quarter

China ‘yet to hit bottom’ as economic downturn plumbed new depths in October

Gotta love the press for failing to point this out.

Well, clearly they are "pointing this out" -- where do you think you copied and pasted these headlines from?

7 ( +7 / -0 )

Gotta love the press for failing to point this out.

Who neees the press , when we can always rely on Shinzo,s internet soldiers to bring up the usual ' but look at country X, Y an Z' tactic to try divert focus from LDP,s failings. Is it really that hard to comprehend what the J in JT stands for and why we focus on whats happening here instead of US or China? Lame.

*
9 ( +9 / -0 )

Abenomics doesn't exist. It's just a transparent print and spend policy with no reform attached.

9 ( +9 / -0 )

Why some of the guys here that blindly try to defend the ultra right wing conservatives always use the “what about” topic in order to change the negative aspects of their country?

These kind of people rather than bring a constructive benefit to their nation keeps it blindly in a bad spot.

The smart people and civilized societies always try to improve and change their point of views if someone else comes with better solutions.

Abe and his government with the obscure and sinister Nippon Kaigi behind had done nothing good.

The only three arrow I see are these:

1 Dramatically worsened the relationship with their neighborhood

2 Built an impressive self defence force and for what reason?

3 Empty the pockets of the normal civilization with taxes and no welfare help but make the pocket full for their associates which are 1% of the national population of your country.

Really well done.

11 ( +11 / -0 )

Yamamoto suggested the answer may lie in yet more government spending.

I see, more of the same of what was being done before Abenomics. Depressing indeed.

I think the answer, although painful, is right in front of the Japanese. Regulatory reform, like Trump did in the US.

Lower Corporate taxes, incentives for the everyday Japanese to make business without relying on the same suppliers, destroy the protectionist rackets that are crippling Japan but enriching a few, change the education system, more green cities, break up the monopolies, open the markets to the world, there are so many things that could be done, but they draw a blank stare of disdain if you ask any Japanese to consider this.

1 ( +2 / -1 )

The US economy may not grow at all in the 4th quarter

if the new trade deal with Mexico and Canada could get passed, here comes yet another boost. Stock market is on fire, again. Trump knows how to stay out in front of the gloom, unlike the Dems who want the US to become another Japan; everybody the same without any future.

-3 ( +1 / -4 )

Enough doom and gloom. The Olympics is just around the corner, and will provide a huge boost in construction, tourism, retail and so on. Furthermore, it is priceless advertising for Japan, and tens of millions of tourists will be flocking to Japan following the Olympics, spending huge cash.

I hope you're joking. This olympic farce has already cost Japan an arm and a leg, and is waaay over budget. Absolutely not priceless advertising.

8 ( +8 / -0 )

I think Abe was banking on tourism, but that hasnt gone down so well with the locals, and turned into a trinklet economy. A casino stopover in Yokohama could do something, but it never got built.

The painful reforms....they will come but not due to the government. It will only get worse before it gets better.

4 ( +5 / -1 )

@gaijintraveler

"The Olympics is just around the corner, and will provide a huge boost in construction, tourism, retail and so on."

The olympics saddles a country with a huge amount of debt. Also, the jobs created for the Olympics don't stay around after the olympics. Brazil still hasn't recovered from the Olympics.

@alwaysspeakingwisdom

You are correct that the entire world is suffering from the rise of nationalism and trade wars. However, one specific problem that has happened due to Abenomics that hasn't befallen other countries is the wage issue. While the world was making record profits wages were also going up. While Japan was making record profits, wages were falling. A recession doesn't necessarily mean a country will be in bad shape. Recession is a natural part of the cycle.

5 ( +5 / -0 )

Government spending is the answer. Haven’t you guys ever heard of MMT (modern monetary theory)? Government debt creates as much assets in private sector.

-1 ( +1 / -2 )

For petes sake "Abenomics" is simply a horrible HOAX!

9 ( +9 / -0 )

A world war would allow Japan to reflate out of debt. I hope Japan doesn't go broke before I am eligible for my pension in yens.

2 ( +3 / -1 )

If my house was slowly flooding, I would sandbag and take all kinds of measures to take care of my house. I would not look and say, hey my neighbor in the US is also flooding. Look China is also flooding. It not my fault my house is flooding.

What’s the point of this conformist mentality?

5 ( +5 / -0 )

While Japan was making record profits, wages were falling. A recession doesn't necessarily mean a country will be in bad shape. Recession is a natural part of the cycle.

But an interesting phenomenon I have witnessed in Japan over the last several years is that wages have significantly fallen, during any cycle. Wages are now quite low, even at min. wage.

3 ( +3 / -0 )

There is near market consensus that it will contract outright in October-December, as consumers take the hit from an October sales tax hike and the fallout from the trade war widens.

Told ya so! Totally yet sadly expected!

2 ( +2 / -0 )

Enough doom and gloom. The Olympics is just around the corner, and will provide a huge boost in construction, tourism, retail and so on. Furthermore, it is priceless advertising for Japan, and tens of millions of tourists will be flocking to Japan following the Olympics, spending huge cash.

What a joke, construction for the Olympics is finishing up NOW, the rest is cosmetic and will do nothing for the economy!

Next the Olympics is a temporary boost and not a long term solution.

Abe's free money policies have done nothing but put the country further into the red, and he DOES NOT CARE!

Abe's legacy is one of failure!

3 ( +3 / -0 )

You reap what you sow Japan.

5 ( +5 / -0 )

Should have at least tried raising (by law) the pitiful minimum wages ages ago. More young people would have had more money to spend. Would also have increased labor participation, immigration and inflation. But no... round after round of the same old stimulus packages (pork-barrel spending) together with tax cuts for companies helping keep the LDP in power while effectively burying the future generation in a grave of debt.

6 ( +6 / -0 )

Abe seems determined to ruin Japan has we know it.

While families are genuinely concerned about putting food on the table Abe is only bothered about changing the constitution.

The really serious point is that as a country’s economy worsens the more said country moves to the right.

It is not beyond the realms of impossibility to see Japan becoming a police state in the future and possibly worse.

Afterall,Abe has the law changed so he could serve a 3rd and possibly 4th term.

Abenomics,like others have said,has been nothing more than what the LDP has been doing for the last 30 years...that is spending tons of money it doesn’t have.

2 ( +2 / -0 )

Time to bail on this sinking ship...

2 ( +2 / -0 )

the government has struggled to make progress on structural reforms.

Yeah because they haven’t had a majority to be able to do so.

... oh wait. wtf have they been doing?

Yamamoto suggested the answer may lie in yet more government spending.

But years and years of heavy fiscal spending and central bank money printing have failed

Genius.

Mr Ohtsuka there at the end seems to be suitable Prime Minister material.

1 ( +1 / -0 )

Even the New Deal 1 and 2 didn't get the US out of the prolonged recession since the Crash of 1929. WWII did. The circumstances are similar for Japan at the present time. I wonder if that's why Abe is demonizing both Koreas cuz they are the perfect enemies that carry weight and that's doable.

0 ( +1 / -1 )

A world war would allow Japan to reflate out of debt. I hope Japan doesn't go broke before I am eligible for my pension in yens

Interesting idea; explain how it would work. A munitions economy? Supplying allies, or itself?

-1 ( +0 / -1 )

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