Abenomics at one year: Growth to slow as challenges mount

By Stanley White and Tetsushi Kajimoto

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Gains in exports will fix the economy. The more goods Japan produces and sells, the more money it will receive.

So, why not make it more possible for this to occur? Encourage start ups, tax breaks for manufacturers?

Helping new companies starting up is an excellent way to create new business. When I came to Japan in the 70's, it was very easy to start a company and there were much fewer restrictions than now. As a result, several new businesses started and boomed. One of these was Nintendo.

In any case, calling it "Abe"nomics is a PR gesture, probably thought up by some bright spark in the Civil Service. How could he refuse a scheme like that?

If only we had a Prime Minister who could actually think and create his own ideas!

0 ( +1 / -1 )

It looks now as though Abenomics is doomed to fail.

The first arrow, easing monetary policy, and government bond puchases, was well implemented.

The second arrow, massive public spending, was stupid. It more or less erased the potential benefits of the first arrow.

It looks now like the third arrow, which was the most important of the bunch, does not exist.

So now, all we have to show for Abenomics is an increase in paper value of the stock market, which is quickly being divested outside Japan, a questionable increase in inflation, and pretty much no growth in the private sector. In the meantime, government spending is at record levels, and an unpopular tax is about to be levied.

The scenes are being set for an epic collapse.

-2 ( +3 / -5 )

Like I said... Abenomics will not work in even the short run. Everyone wants a quick fix without looking at the long term, so they vote for the guy who promises it. Inevitably, he cannot deliver.

-3 ( +3 / -6 )

All hale Abenomics!!!!! (As the biggest economic failure of the Industrial Age). Abenomics is destined to fail simply because it is built on 30 year old ideals and depends on a workforce and international markets that no longer exist. The result will be a flash in the pan economic recovery due to optimism on the stock market quickly followed by a major crash with increased poverty and soaring unemployment. Move over Spain and Brazil. Japan is coming to join you at the bottom of the heap.

-1 ( +2 / -3 )

So one quarter, which showed positive growth that didn't meet the high expectations after several strong quarters, and you're all condemning an entire policy? A tad premature, don't ya think?

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So, why not make it more possible for this to occur? Encourage start ups, tax breaks for manufacturers?

These problems were supposed to be shot down by the elusive "third arrow".

First, Japanese companies are heavily-staffed, and many staff members are unproductive. Government regulations make it nearly impossible to fire "seisha" employees, even if all they do at work is sit on the toilet and read a newspaper all day. The labor unions, and their members (who are regular voters) are not likely to allow these regulations to be relaxed.

Second, most "start-ups" cater to the domestic Japanese market, which is steadily declining due to a falling population. And the severity of bankruptcy laws in Japan (a bankrupt person cannot be hired by a respectable company, and loses their right to vote) make many Japanese fearful of the risk of trying to start a new business.

Third, though the corporate tax in Japan is among the highest of industrialized nations, governments are loath to decrease the tax rate. The higher the tax rate, the easier it is for politicians to extort companies for kickbacks or fluff, in return for tax loopholes deductions for certain expenses. This practice is more common than you know, particularly in Japan.

-2 ( +3 / -5 )

I would actually take all the naysayers in the peanut gallery above as a contrarian indication that Abenomix just might work. I have never been right on the economy, just like all of you, so if we say it's going down, it's going up.

1 ( +3 / -2 )

Shhh...the JT contrarian indicator has been a speculators dream...

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I don't know if Abenomics is actually working or not ... but one thing is for certain ... prices keep rising everywhere for all kinds of reasons ... all of them directly connected to the results of Abenomics in progress. That word, Abenomics, is sounding worse and even more worse all the time ...

2 ( +2 / -0 )

Whoever came out with the term " Abenomics " must be congratulated. It will go into the finance history book as the namesake failure and what not to do when you do not know what to do.

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So how many of you are worse off? How many are better off from one year ago (just curious)...

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Every country has shrinking GDP while mysteriously rising stock markets, and endless money printing with an even more mysterious inflation ne'er to be found.

I say somebody's cooking some books or something.

Ain't gonna end well. Not two ways about it.

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" Growth will quickly rebound as shoppers rush to spend before a national sales tax is increased to 8 percent from 5% in April, economists say."

So, there will be a bump. Yep. A smallish bump. And then will come the dip. Yes, I see construction of homes now, and refinancing of home loans, and those are being done AHEAD of the tax increase. Watch the winter bonuses. There will likely be un uptick of big-ticket durable goods until March. But there will also be people padding the savings while they can. Hiring in Spring is already looking thin.

-1 ( +0 / -1 )

Most of the japanese GDP is nationally fuelled - like US - thus GDP growth in a fast shrinking population with upside-down age pyramid is simply impossible. Except if women and immigrants enter the workforce to sustain the tax payer base. But I see no social nor political will to move into that direction, while this is a 1-2 generation process.

3rd arrow!!??

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If people think that it is just Japan in the sh!t they are deluded. Every advanced economy in the world is on the point of collapse. The elephant in the room is oil, look for the spike in oil prices before 2008. It will happen again because the oil supplies are decreasing and they won't be able to hide it no matter how they cook the books.

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I spoke to a business journalist who writes for Bloomberg asia. She focuses on Japan and often writes about the need for the Japanese government to stop running deficits. She claims she has tried to warn many others in the country about the runaway debts, but gets ignored at every turn.

Japan will never solve its economic problems if it keeps spending more into deficit each year. Government can't spend money efficiently. Abenomics is designed to errode the value of the Yen through inflation, thereby making it easier for the government to pay back previously borrowed money. If the government can increase inflation to 2% per year, and if it can borrow money at less than 2% per year, it can pay off its massive debts by making it debts depreciate and its revenues appreciate, artificially.

This scheme represents a tax on the Japanese people. Inflation is a tax. Inflation is not good for the economy. Stable prices are good. When the government increases the money supply in relation to the production of goods and services by producers, people who have savings are not able to afford what they previously could afford.

When the Japanese people realize that inflation is there, they will demand higher bond returns. When higher interest rates are demanded by bond investors, the Japanese government will not be able to afford the interest payments on their total outstanding debt.

Greece defaulted even though they had much less debt that Japan. Japan will not avoid default. Just becuase they can 'print' their own currency doesnt mean that investors will accept it forever.

In the next 10 years, Japan will default. When this happens, the world economy will tank and everyone who has any indirect dealing with Yen or the Japanese economy will take a massive hit to their wealth status.

-1 ( +2 / -3 )

That Japanese economy is definitely at a tipping point. It doesn't matter how good cars they make if the basic economy breaks the country will sink.

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Growth will always slow when a "Show Boat" prime minster has to slow down spending MORE borrowed money - which just the interest payments of the debt takes 25% of total tax earnings. It's amazing how all Japanese Pollies are just ignoring the serous huge debt problem! Is it because they are incompetent to try and fix the problem? YEP!

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ex-japan-visitor - Good Comments and you are mostly correct, except for one major factor - only 10% of the debt is foreign borrowings, the rest has been taken from the population. This makes the comparison between Japan & Greece incorrect.. LUCKILY for the time being at least....

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I been hearing the doomsters blabbing on with their negative rhetoric for over 20 years, japan is falling japan is failing the collapse is imminent, so far it hasn't collapsed and is one of the recovering economies so forget spouting all this rubbish and just put your head down and get on with life, when if it goes ping then so be it, but until then stop with the sky is falling blabber please.

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Reality begins. Time to face up to it.

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To all of those who criticize Abenomics, Abenomics is not only about fiscal measure and depreciating yen , abenomics is a new growth strategy which focuses on graping the Japanese economy out of the lost decades. Also, you should read more before posting useless comments. Read (http://www.nippon.com/en/features/h00042/) which tells everything about Abenomics. Mr Shinzo Abe brought growth to Japan after 3-4 months from the the day he was in power. Not like Barack Obama , European leaders and David Cameron who just can't bring their economies out of recession.[ Note that they have used quantitative easing like BOJ.]

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To all of those who criticize Abenomics, Abenomics is not only about fiscal measure and depreciating yen , abenomics is a new growth strategy which focuses on graping the Japanese economy out of the lost decades. Also, you should read more before posting useless comments.

Apples and oranges. Abe's "growth" strategy is untenable for three reasons. First, there is no service or product which Japan provides which cannot be provided more cheaply by half a dozen other counties in Asia. Second, Japan's debt has reached nearly catastrophic levels, and, in a time when demand on entitlements is increasing, more than 25% of the tax revenue collected by the government must be paid just to service the national debt, which is still growing. Third, and most importantly, the population is set to to fall by nearly one third by 2050. This last fact alone is enough to doom Abenomics as it has been implemeted so far.

There is one last point to look at when comparing Japan to America and Europe. America and Europe both possess vast resources in the form of raw materials, agriculture, and energy. Japan does not.

-2 ( +1 / -3 )

To sangetsu03 Well Abenomics has proven success until now, so we can't judge on the future and say Oh Abenomics is a big failure. Also, when Abenomics fail you can say whatever you want. We still haven't seen the impact of rising the Consumption tax next April from 5% to 8%, which would contribute in slashing Japan budget deficit. Furthermore, Japan has suffered from a lot of crisis, such as 1997 asset bubble, 2008-2011 financial crisis and the great tohoko earthquake followed by Fukushima nuclear meltdown in 2011, so it's normal for the Japanese economy to suffer after those catastrophes. Finally, we haven't seen yet Mr Shinzo Abe's plan for the womens participation in the workforce, therefore it's better to see and wait before criticizing. Thanks for your reply.

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To sangetsu03 Well Abenomics has proven success until now

That depends on how you define the word "success". The only accomplishments so far are a decrease in the value of the yen. This I approve of, as I own a trading company specializing in exports.

Next, the paper value of the stock market has increased, but money in these markets is easy-come, easy-go. Net growth in Japan, minus government "stimulus" spending, has been disappointing. Manufacturing declined in the last quarter, and it wasn't that strong in the quarter before.

As for the consumption tax doing anything to reduce the deficit, that remains to be seen. The last time the tax was raised, Japan fell into recession, and the deficit increased even more quickly. The economic situation now is more fragile than it was the last time the tax was raised.

Japanese companies are likely to hire more women in the future, but, following the American example, it will be a long time, perhaps three or four decades, before they reach the same status as male workers, and earn a similar salary. And it may be that they never do. Japan cannot wait that long.

America too has seen it's share of catastrophies, and overcome them, but once again, it is comparing apples to oranges. America is large enough to absorb large shocks, and it's population is still growing.

-1 ( +1 / -2 )

To sangetsu03 We can't compare the US to Japan, as the Japanese economy depends only on exports while the American economy depends on several categories, such as tourism, agriculture ,raw materials and energy exports therefore enabling the US economy to overcome financial crisis, as you said before. Also, the United States of America has a growing population due to easy emigration regulations, which enables foreign people to be US citizens.Furthermore, the Japanese can't apply these method as it would have a great impact on their culture and would increase crime rates. What I want to say is that we should wait and see the results of Abenomics firstly and then judge. I really do appreciate your civilized way of commenting.

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