‘Abenomics’ awaits final verdict

By Hiroshi Hiyama ,AFP

TOKYO — An unprecedented campaign by Japanese Prime Minister Shinzo Abe to revive the nation’s economy is paying early dividends and earning praise, but analysts say the tough work still lies ahead. Nearly a year after sweeping national elections on a ticket to revitalize the world’s third largest economy, Abe is basking in high approval ratings — and it’s not hard to see why. The stock market is up about 40 percent from the start of the year, driven by a sharply weaker yen, which is boosting profits at major exporters such as Toyota and Sony, while confidence among Japan’s biggest manufacturers sits at its highest level in more than five years. The long-suffering economy — spurred by government stimulus spending and central bank monetary easing, a policy mix dubbed Abenomics — is growing at a 3.8 percent annualized rate, outpacing other G7 nations. And victory in July upper-house elections has effectively silenced the opposition with no national polls in sight for at least three years. That gave Abe enough legislative muscle to smash through the political paralysis that had doomed his immediate predecessors.

On Tuesday, he vowed to go ahead with a plan to hike Japan’s sales taxes, a decision supported and derided in equal measure, opinion polls show, but one seen as critical to shrinking Japan’s massive national debt. Abe is the first premier in 15 years to attempt a tax rise, a rare example of risk-taking in the country’s political scene but one that proved career-ending for previous leaders. Masaaki Kanno, managing director of economic research at J.P. Morgan, said “all conditions were right” to raise the levy. “The political environment is unusually stable,” said Kanno, who was among 60 economists and business leaders advising Abe on the pros and cons of the move. “I am very bullish on Japan. We are getting out of deflation.” Kanno is not alone in his assessment on the grand experiment to fix Japan’s once world-beating economy. Abe’s hand-picked Bank of Japan chief Haruhiko Kuroda played his part with a huge monetary easing scheme launched in April. The yen has lost about a quarter of its value against the dollar since Abe’s promise while in opposition in November to push through such a program. A Bank of Japan (BOJ) target to reach two-percent inflation in as many years was cited as key to ending years of deflation as falling prices weighed on private spending and stifled business investment. Abe’s supporters say the cheaper currency’s boost to corporate earnings should eventually push up wages and shareholder dividends, in turn lifting spending among the country’s 128 million people. But appeals for the corporate sector to hike wages have largely fallen on deaf ears so far. “If Abe fails to persuade companies to raise wages, the risks of entering another deep phase of deflation will increase,” said Yoshikiyo Shimamine, executive chief economist at Dai-ichi Life Research Institute. “Japan’s economy is approaching a critical stage.”