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Is it as easy as Abe?

3 August 2017

Many will now be familiar with the term ‘Abenomics’ – a simplistic portmanteau of ‘Abe’ and ‘economics’, created to describe the Prime Minister of Japan, Shinz? Abe’s economic policies.

Since his election in December 2012 he has set about implementing his “three arrows” to address falling GDP and wage growth: monetary easing, fiscal stimulus and structural reforms.

Today, more than 4 years on from when the Bank of Japan introduced its quantitative easing programme, initially by promising to purchase ¥60trn to ¥70trn bonds per year, can Abenomics be hailed a success?

The International Monetary Fund (IMF) certainly suggested so, delivering a positive verdict in June this year. This was in part due to positive signs from the labour market, with unemployment currently sitting at a 22-year low. Adding to the bull case are reforms to immigration, addressing an ageing population by allowing skilled labour into the country. Economic growth is also heading in the right direction, with annual growth of 2.2 per cent reported for the first quarter of this year, above expectations. Furthermore, the forthcoming Olympics in 2020 are expected to provide a boost to the Japanese economy.

However, despite being one of the main aims of Abenomics, inflation is still flat and stubbornly refusing to rise, with its current level at 0.4 per cent some way off the 2 per cent target. Despite this, the IMF’s number two official, David Lipton, said “I think we should be considering Abenomics as something that has been successful”. When commenting on the longevity of these policies he added “It should be continued because it has brought success.”

Stagnant inflation aside, there are a few other bear points to temper enthusiasm. Last year’s election of President Trump and his protectionist policies could threaten Japanese exports to the US. Furthermore, a potential slowdown in China (again!), Japan’s largest trading partner, would have a negative impact on exports. Finally, a side effect of Abenomics has been widening public debt levels. The Abe administration has stated that it will address this issue in the short term, but with GDP lagging significantly behind, turning the deficit into surplus will take years.

Economics aside, a recent political scandal and public backlash over suspected cronyism has seen Abe’s popularity drop to its lowest-ever level, with some questioning if he will survive until next year’s Liberal Democratic Party presidential election. As the Prime Minister now battles to restore his reputation and approval rate, despite its success, Abenomics could be consigned to the back burner with the economy suffering as a consequence. So could Abenomics continue without Abe? We may find out the answer to this sooner rather than later.

Contact:
Simon Chruscht
Marketing Manager

Branch: Leeds (Head Office)

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