Prime Minister Abe's Economy-Boosting Drive Basically Successful, But Delay Seen in Some Sectors: Experts
A series of economic measures taken by Prime Minister Shinzo Abe's administration has been basically successful in improving prospects for the economy, but it remains uncertain whether Japan will actually emerge from deflation and regain stable economic growth, according to three noted economic experts.
The Abe administration came up with a three-pillar economic policy package, dubbed "Abenomics," on its inauguration Dec. 26 last year.
What the administration calls the three "arrows" in the Abenomics economic agenda, envisaged, in part, taking bold monetary easing measures. The Bank of Japan's very accommodative monetary policy contributed to pushing down long-term interest rates and increasing stock prices, and as a result the yen turned toward depreciation on exchange markets. According to the government's scenario, these effects should prompt the general public to have inflationary expectations, and foresee increases in wages and prices, thereby helping to further stimulate the economy, but such a favorable cycle of expectations is yet to be seen, the experts said.
As one of the three arrows, the administration has launched an ambitious growth strategy, but the course of efforts to this end is not predictable, either, they said.
The remarks were made by Kazuto Uchida, an executive officer of Bank of Tokyo-Mitsubishi UFJ, Hitoshi Suzuki, a senior economist in charge of research, recommendation and planning at the Daiwa Institute of Research, and Kenji Yumoto, vice chairman of the Japan Research Institute. Their discussion was moderated by Genron NPO President Yasushi Kudo.
"The Abenomics policy package is half successful at present, but a careful watch is necessary to ascertain whether the remaining half will be truly effective in improving the economy," Yumoto said.
The Abenomics policy agenda is primarily designed to stimulate the economy by boosting people's expectations for increases in consumption and capital spending by companies. Pessimistic views about the course of the economy heard before the inauguration of the Abe administration have weakened and expectations that Japan may be able to pull out of deflation appear to be increasing, he said.
It remains to be seen if the desired effects are actually emerging on the government's policy of stimulating people's expectations for inflation to keep the economy on a recovery track, Uchida said. An increasing number of companies are ready to increase wages toward the next fiscal year while, according to a recent newspaper report, private companies plan to increase their capital spending from now on, according to Uchida. "However, as far as hard data about the economic performance are concerned," the economic picture is not necessarily favorable, he said.
Sentiment on the economy's performance is brightening not only among financial market participants but also among entrepreneurs and some individuals, Suzuki said. But he sounded relatively cautious about the course of the economy, noting slower increases in exports amid some unfavorable signs in the global economy and the planned hike in Japan's consumption tax rate in 2014.
Excerpts of their remarks on other issues follow:
Uchida: A package of emergency economy-boosting measures has contributed to improving business sentiment. The consumption tax rate will be increased by 3 percentage points to 8 percent as from April at the start of fiscal 2014, and this is estimated to have a deflationary effect of 7 trillion yen. To cover the depressive influence, the government expects to execute 5 trillion yen of economic measures under a supplementary budget. The government's flexible fiscal policy is performing well at present, as it aims at achieving sustained economic growth, but efforts to repair the deficit-ridden fiscal house are not making smooth headway. The course of efforts for fiscal reconstruction must be carefully watched in the years to come.
Suzuki: Economic fundamentals for the first half of 2013 were fairly good with the support of public demand, but some unfavorable signs emerged in the July-September quarter. As an example on this score, a truly favorable sign is yet to be seen in plant and equipment investment in the corporate sector. Unless this kind of strong sign emerges, it cannot be said that Japan has got back on an autonomous growth path.
Growth strategy and deregulation policy
Yumoto: The first and second arrows of the Abenomics policy package have almost achieved the desired effects of supporting the economy, but the government should make more efforts to ensure the effects of the third arrows will appear in economic activity at an early time. After the end of the House of Councilors election this summer, the government launched various measures under its growth strategy calling for, among other things, inaugurating "nationally strategic special zones." The timing for executing specific measures to this end is behind schedule. There is no sign, either, of the administration's efforts digging into the so-called "bedrock" hardest-to-crack regulations. As Prime Minister Abe himself is enthusiastic about cutting bureaucratic red tape, hopes remain hat his deregulation campaign will be a success. But the government's efforts in this policy area are losing momentum.
Suzuki: The preceding three administrations of the Democratic Party of Japan focused on better distributing wealth among the people while the Abe administration is a growth-oriented Cabinet that aims at increasing the size of the economic pie. This was a big change. The first and second arrows of Abenomics found their target and were successful as short-term efforts to boost demand. It remains to be seen if a prime engine in stimulating the economy can be smoothly shifted to private demand from public demand. The administration has put into practice the publicly promised policy measures for the present, among them those for inaugurating nationally strategic special zones and enhancing Japan's industrial competitiveness. But it cannot be predicted if these measures will contribute to increasing the size of the economy's pie in the years ahead.