Japanese New Economic Policy

Japanese Economic Outlook
“Abenomics” as a new economic policy in Japan
August 31, 2015
Fumio Hoshi
Advisor
Sumitomo Mitsui Banking Corporation
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Table of Contents
 Japanese New Economic Policy – Abenomics
 3 arrows
 Abenomics so far
 Opportunities and challenges



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1
Japanese New Economic Policy - Abenomics
 Background
• Japan lost 2 decades after the bubble economy collapsed –
recession, strong Japanese Yen, stagnant stock prices, etc.
4%
45,000.00
40,000.00
3%
35,000.00
Peak of the
bubble
economy”
2%
30,000.00
25,000.00
Inflation rate
(Left, % change)
20,000.00
Stock price
(Right, Nikkei 225, JPY)
1%
0%
15,000.00
10,000.00
-1%
5,000.00
-2%
0.00
1985
1990
1995
2000
2005
2010
Data from 1985 to 2012
Source: IMF, Nikkei
Key challenge – “Pulling out of continues deflation”
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2
Japanese New Economic Policy - Abenomics
 New economic policy
• Early 2013, Abe Cabinet launched a new economic policy –
Abenomics
• Ultimate objective - “Change mindset of Japanese people
from deflation to inflation - 2% inflation target”
 Abenomics - consists of “3 arrows”
I.
Unlimited monetary easing through the central bank (Bank
of Japan - BOJ)
II. Massive fiscal stimulus through public spending
III. Structural reform to improve economic growth potential
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3
3 arrows / 1st arrow - monetary easing
 Measures
• 2% inflation target
• Unlimited money supply / asset purchase through BOJ
e.g. Japanese Gov Bond purchase: Apr 2013 +JPY50trillion (USD500bil),
Oct 2014 +JPY30trillion (USD300bil)
• Negative interest rate
 Objectives
•
•
•
•
Reduce (negative) interest rates
Weaken Japanese Yen vs USD
Increase exports
Lift up stock prices
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4
3 arrows / 2nd arrow – public spending
 Measures
• Massive government spending
(As of Jan 2013, JPY10trillion (USD100bil) extra budget
approved)
 Objectives
• Contribute GDP growth – impact estimated 2%
• 600 thousand job creation expected
• Stimulate private sector investment
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5
3 arrows / 3rd arrow – structural reform
 Measures
• Deregulation / regulatory reform
(e.g. medical regulation easing, labor market reform,
adopting TPP - Trans-Pacific Strategic Economic Partnership
Agreement)
• Corporate tax reduction
 Objectives
•
•
•
•
Facilitate private sector investment
Promote Japanese businesses globally
Improve Japan's human resources potential
Create new business opportunities – agriculture, energy, etc.
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6
Abenomics so far
 Economic recovery
130
510
120
500
Abenomics
launched
490
110
480
Gross Nominal GDP
(JPT trillion)
470
Currency rate
(JPY vs USD)
100
90
460
80
450
70
440
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Data from 2011 to 2015
Source: Japanese Gov, BOJ
25,000
20,000
Abenomics
launched
15,000
10,000
Stock price
(Nikkei 225, JPY)
5,000
Data from 2011 to 2015
Source: Nikkei
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7
Opportunities and challenges
 Opportunities
• Change mindset from deflation to sustainable growth
• De-regulation against “bed rock regulations” – agriculture,
medical, health care, labor market, etc.
• Real estate investment increase – office vacancy rate low,
high-end residential condominium
• Investment opportunities toward Tokyo Olympic in 2020
• Increase number of tourists to Japan
• Wage increase, job applicant ratio improve
• Employment opportunities for women
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8
Opportunities and challenges
 Challenges
• Fiscal reconstruction – huge negative primary balance,
government debt over 200% of GDP, etc.
• VAT hike in 2017, other tax reform necessary
• Post monetary easing
• Falling oil prices (negative to inflation)
• Demographic composition for labor market
Narrow path but may be achievable
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9

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