While data suggests that Europe is recovering (Europe Post), Japan’s economy remained stuck in first hear in the fourth quarter. Japan’s economy only grew at an annual rate of 1% in the first three months of 2013, which is much lower than the 2.8% expected growth rate. This raises questions over Abe’s ambitious plans about making Japan’s economy stronger. Prime Minister Abe has increased government spending and made a central banker who is not afraid of using aggressive monetary policy. His plan, which is known as Abenomics, is to end deflation and lead to more stronger growth for Japan’s economy.
Since the announcement of stimulus plan in April, the yen (Japanese currency) has fallen 27% against the dollar and helped Japanese manufacturer compete against international rivals. We can easily find examples from auto industry. Toyota and other Japanese auto manufacturer were able to lower their prices and compete better. Abe’s plan was that depreciation of current would lower the price level of a country’s exports, which makes them more attractive to international consumers. Abe argued this strategy will boost Japan’s flagship brands and lead to higher wages for workers.
However, CNN Money points out that “wages have not gone up much and pro promised structural reforms have been difficult to implement.” His ideas, so far, have not made that much difference. I am not sure if Japan’s economy will continue to stagnate or not. However, I think Abe needs to change his tactics to improve the economy.
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I remember when I was studying in Japan last year, my economics professor (a Japanese guy at a Japanese university) said of Abenomics, (then a recent concept at the time, as he had just been reappointed as prime minister) was hugely risky and very unlikely to work just from a theoretical point of view. It seems unfortunately that my professor was right on the money from what we have seen.
Abenomics to me seems spurious at best and we have learned through the years what happens to policies which theoretically do not make sense. On the contrary, Japan remains to have positive growth preventing them from economic collapse or similar fate to countries such as Iran, Greece, where credit issues plague their countries. The Japanese are a hard working, highly educated people and still remain among the strongest countries in the world. It will be interesting how policy will change during 2014 and how they will continue to grow.
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