What is Abenomics and Is It Working?

Day_4_Group_4

Ching-Hung, Yu-Hsin,Powen,Minh-Phuong

CONTENT

What is Abenomics ?The Three Arrows of Abenomics

Effects of Abenomics Bright Future?Conclusion

What is Abenomics ?Abenomics refers to the

economic policies advocated by Shinzo Abe since the December 2012 general election, which elected Abe to his second term as Prime Minister of Japan.

Abenomics is based upon "three arrows" of fiscal stimulus, monetary easing and structural reform.

The Three Arrows of Abenomics Bold monetary policy

◦Printing money and easing monetary policy to jolt consumer spending and weaken the yen, thus boosting exports.

Flexible fiscal policy◦Spending money by revving up fiscal

stimulus.Structural reform

◦Economic growth strategies to encourage private investment.

The First Two Arrowsimplemented in the first weeks of

Abe's government.Including a hefty stimulus package

worth of 20.2 trillion yen Specific policies include :

◦inflation targeting at a 2% annual rate, ◦correction of the excessive yen

appreciation,◦setting negative interest rates, ◦radical quantitative easing, ◦expansion of public investment, ◦buying operations of construction

bonds by Bank of Japan (BOJ).

The Third ArrowStructure Reform

◦ First attempt in June 2013 is fell flat◦ Second attempt in June 2014

measures◦ Industry liberalization and Increased

workforce diversity ◦ government pension fund investments

setting new guidelines for investment by the government pension fund (GPIF); increasing permitted allocations to equities

◦ corporate governance: mandatory compliance with a “Corporate Governance Code”

◦ tax policies: cut the corporate tax to below 30% from the current level of over 35% next year

Effects of AbenomicsExchange rate

◦ 25% lower against the U.S. dollar in the second quarter of 2013 compared to the same period in 2012

XE Currency Chart

Effects of Abenomics (cont.)Stock market

◦ By May 2013, the stock market had risen by 55%

Effects of Abenomics (cont.)GDP growth

Effects of Abenomics(cont.)unemployment rate

◦ The unemployment rate in Japan fell to 3.6%.

Effects of Abenomics (cont.)Inflation rate (YoY)

Bright future?Inflation v. third arrow

Tom Orlik of Bloomberg

Bright future?Too much public debt

Conclusion

Abenomics seems working◦ Japanese economy is gradually

healing and growing modestlyLong term performance not clear

◦ Whether the political will to undergo the structural reforms can be sustainable?