Much has been made throughout 2013 about the three “arrows” of Japanese Prime Minister Shinzo Abe. While this deflation-fighting plan of monetary loosening, fiscal stimulus, and structural reforms has been broadly successful, I believe it will be the strength or weakness of the yen that will determine whether Japan’s economy emerges convincingly from its deflationary period in 2014.
Posts tagged ‘Japan’
In this week’s Economic Commentary, we discussed the importance of the concept of “three arrows” in the economic policies of Japan’s Prime Minister Shinzo Abe. Definitely check out the full piece, but here’s a quick summary. In the 1500s, as the legend has it, a Japanese nobleman named Mori Motonari wanted to demonstrate to his three sons the strength that they had together, but lacked individually. He gave each son an arrow and told them to break it. Very easily, each son snapped the arrow. Then he gave each son three arrows and told them to break the bundle at once. They couldn’t because three arrows were too strong.
Mori-san hailed from the same prefecture that Prime Minister Abe comes from, so it’s fitting that Abe picked up the idea of three arrows when spelling out his economic policies meant to lift Japan from decades of deflation and economic stagnation. Abe’s three arrows are 1)easy monetary policy, 2)increased government spending, and 3)increased efficiency through economic reform. Read more
In the last few months, the world has gone crazy for “Abenomics” – Japan’s hopeful escape route out of its two “lost decades.” It’s the aggressive monetary easing from the Bank of Japan that has produced the most significant reaction so far. The central bank has adopted a new inflation target of 2% to be achieved within two years, and to hit this target, the BoJ will double the size of the monetary base by the end of 2014, mainly through increased purchases of Japanese government bonds (JGB).
To put the BOJ’s quantitative easing in context: the policy measures will produce a massive expansion of the balance sheet to 60% of GDP by 2014. By contrast, the Fed’s balance sheet is unlikely to grow to more than 30% of GDP. Read more
That’s not tea brewing in Japan; it’s a bit of a political and economic storm. Oddly though, this isn’t a clash between Yoshihiko Noda, current prime minister of Japan, and Shinzo Abe (Noda’s presumptive successor if current polls are to be believed). Rather, there’s a growing enmity between Abe and the governor of the Bank of Japan, Masaaki Shirakawa. Abe, leader of the Liberal Democratic Party (LDP), is ahead in current opinion polls and could likely become the next prime minister. He’s also got some pretty bold ideas on monetary policy; bold enough that he’s been getting jabs from Shirakawa, whose term as Japan’s head central banker expires in April 2013. And these statements are causing market movement.