Whatever Happened to "Abenomics"?
"Abenomics" - the nickname given to Japanese Prime Minister Abe's economic policies - was going to boost Japan's economy. Japan's economy would lift itself up by its bootstraps with the plentiful money printing pursued under the moniker "QE" or quantitative easing. Intelligent analysts rejoiced when Abe won the election; they claimed it was just what Japan needed, having experienced decades (since roughly 1990) of deflation, or what some called "mild" depression. Abe prescribed just what the sick patient needed to rise from its fatigue, its doldrums. Economic activity would perk up. In addition, the inflation that would ensue would basically urge or really force people to spend their money, something they've been loathe to do for ages.
And so it seemed to follow after an initial flurry of government and central bank policy decisions that kowtowed to Mr. Abe's orders upon being elected - until the government instituted a sales tax. What happened, we suspect, was that people felt the impact of that tax on their increased spending and naturally pulled back. Who wants to pay more tax? Inflation calmed down, as pressure on prices eased when demand dropped.
Meanwhile, Abe pushed his central bank to push the value of Japan's currency, the Yen, down, which effectively caused the prices of Japanese products to drop relative to their competition. Again, at first, companies like Toyota benefited from the ability to price their products more favorably compared to their competition. For one brief shining moment in time, it all appeared to be working beautifully. And it likely would have had Japan been the only country in the world - which it isn't. Even then, perhaps it would have worked a bit longer had the Japanese government not instituted that sales tax - which it, of course, did. And maybe Japanese exports might have continued to rise, taking advantage of pricing power, had other nations held their own currencies high relative to Japan's currency - which they didn't, witness the recent devaluation of Japanese competitor China's currency.
And so we now see things seem to be reversing, heading in the wrong direction, turning back to the bad old days of decreasing economic activity: As reported on Bloomberg.com, we may even be witnessing Japan's economy sliding into recession:
Now, as to why we think it might be true that the slowdown will continue - which our "re-phrasing" asserts - here's what's being glossed over by not only Japan's officials, but by just about all other government officials and central bankers: worldwide economic slowdown. Are we now in the red zone with slowing economies worldwide? Well, the deflationary trends do seem to be accelerating, with oil, copper, and other commodities resuming their drops. Other signs - which we won't get into here - also point to accelerating slowdown and deflation.
If that's all true, then for Japan to resist that trend, even reverse it, seems like an impossible task.
And so it seemed to follow after an initial flurry of government and central bank policy decisions that kowtowed to Mr. Abe's orders upon being elected - until the government instituted a sales tax. What happened, we suspect, was that people felt the impact of that tax on their increased spending and naturally pulled back. Who wants to pay more tax? Inflation calmed down, as pressure on prices eased when demand dropped.
Meanwhile, Abe pushed his central bank to push the value of Japan's currency, the Yen, down, which effectively caused the prices of Japanese products to drop relative to their competition. Again, at first, companies like Toyota benefited from the ability to price their products more favorably compared to their competition. For one brief shining moment in time, it all appeared to be working beautifully. And it likely would have had Japan been the only country in the world - which it isn't. Even then, perhaps it would have worked a bit longer had the Japanese government not instituted that sales tax - which it, of course, did. And maybe Japanese exports might have continued to rise, taking advantage of pricing power, had other nations held their own currencies high relative to Japan's currency - which they didn't, witness the recent devaluation of Japanese competitor China's currency.
And so we now see things seem to be reversing, heading in the wrong direction, turning back to the bad old days of decreasing economic activity: As reported on Bloomberg.com, we may even be witnessing Japan's economy sliding into recession:
Gross domestic product fell an annualized 1.6 percent from January-March, ending two quarters of growth, the Cabinet Office said on Monday. The median estimate in a Bloomberg survey was for a 1.8 percent drop.If not recession, then at the very least consumers stopped running out to buy - although you'll notice that the "weather" variable was also inserted. (Remember how economists blamed winter weather for soft growth here in the U.S. for months?)
Consumption dropped for the first time in four quarters, reflecting the effects of poor weather and as consumers try to cope with last year’s sales-tax hike and pay that hasn’t kept pace with rising living costs. Exports fell 4.4 percent from previous quarter, the steepest decline since 2011.Hey, part of Abe's master plan was that wages would "have to" increase as prices rose. What happened?
Governor Kuroda said last month he didn’t think Japan’s slowdown would continue from July, and earlier this month said recent weakness in industrial production and exports would be temporary.
Japan “need not worry” about China’s currency devaluation of the yuan because it can always offset the effects by easing monetary policy, said Koichi Hamada, an adviser to Abe.Of course, Kuroda's comments need to be taken with a grain of salt. We'll apply our little trick of re-phrasing Kuroda's remarks to say the opposite:
"...he thought Japan's slowdown would continue, and weakness in the industrial production and exports would also continue.There's simply no way Kuroda would ever say this, even thought there's a good chance it might be true. The head of any central bank won't ever say anything negative, in light of the fear that their very comments will undermine confidence. So they stick with either boring, statistical chatter or outright cheer-leading.
Japan 'needs to worry' about China's currency devaluation of the yuan because it simply can't count on offsetting the effects of it by easing Japan's monetary policy."
Now, as to why we think it might be true that the slowdown will continue - which our "re-phrasing" asserts - here's what's being glossed over by not only Japan's officials, but by just about all other government officials and central bankers: worldwide economic slowdown. Are we now in the red zone with slowing economies worldwide? Well, the deflationary trends do seem to be accelerating, with oil, copper, and other commodities resuming their drops. Other signs - which we won't get into here - also point to accelerating slowdown and deflation.
If that's all true, then for Japan to resist that trend, even reverse it, seems like an impossible task.
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