Ailing-Nomics

Shinzo Abe was re-elected as Japan’s Prime Minister in December 2012, a post he had held in 2007, on promises to revive the country’s sluggish economy by way of a 3-point plan, dubbed, “three arrows,” consisting of a massive fiscal stimulus, aggressive monetary easing via the Bank of Japan and structural reforms needed to improve competitiveness. The plan was immediately labelled Abernomics.

The results so far?

Well, the stock-market is not the economy, but it’s a leading indicator of it and also a bell-whether of collective social mood, so let’s first look at that:-

4 Sept 1

Initially the market soared by 50% over the five-months following Abe’s election, aided and abetted by a 20%+ debasement of the Japanese Yen, since when both metrics have moved sideways on falling volumes, (note the blue dashed lines.) Abe achieved the currency fall by heaving out the incumbent Central Bank Governor, Masaaki Shirakawa, and replacing him with someone more prepared to sacrifice the Bank’s independence and crank up the printing press, akin to their counterparts in the US and the UK.

What about the Economy?

The first quarter of 2013 showed promise as measured by GDP, not surprising given the sentiment-induced stock-market boost shown above, but after the subsequent side-ways move, it’s looking decidedly iffy. Just one month after the Japanese government raised its assessment for the economy, the provisional Q214 GDP number slumped by -6.8% annualised rate against Q1’s +6.1%, a huge reversal which has co-incided with the introduction of an 8% sales tax and higher energy costs, an unfortunate by-product of the Fukushima disaster of March 2011 and the closing of Japan’s Nuclear power plants, replacing its need by more expensive imported energy.

Two decades of deflation has vastly depleted household savings and the money in circulation, as shown by the nation’s M3 money-supply. It’s interesting to note the correlation between money-supply and GDP and although not shown, M3 has been in a falling trend since 1990, albeit that it enjoyed a rally post 2006, including the spike on Abe’s appointment but it’s now declining once more.

4 Sept 2

Recent economic data out of Japan has been disappointing to put it mildly, including falling small business confidence, housing starts in July slumping by 14.1% year on year after June’s – 9.5% and lower retail sales. Unemployment rose to 3.8% in July whilst overall household spending for the same month contracted by 5.9% after June’s – 3%. As one would expect, there is a close relationship between the latter two variables, particularly for an ageing population, holding over half of their financial assets in cash.

4 Sept 3

Aside of a reduced work-force, which is experiencing a fall in real wage’s, the ¥1,000,000,000,000,000 of public debt, which needs to be serviced as the printing press is ratcheted-up yet another gear, not to mention the plans for a further hike in the sales tax, consumption, the engine of Japan’s GDP, is unlikely to increase any time soon.

Ailing-Nomics is perhaps a more fitting term.

 

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3 responses to this post.

  1. […] for the many it may have been a shock, our early September 2014 piece, entitled “Ailing-Nomics,” observed that “consumption, the engine of Japan’s GDP, is unlikely to increase any time […]

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  2. […] “Ailing-Nomics,” from September, noted the correlation between the Nikkei and the weakening Yen and between […]

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  3. […] “Ailing-Nomics” commentary of early September 2014, discussed Prime Minister Shinzo Abe’s grand plan, […]

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