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.