SUCCESSES OF ABENOMICS

Shinzo Abe

The Economist reported: “Mr Abe’s first two efforts were so successful. A weaker yen has boosted exports. The first signs of inflation are appearing in Tokyo—a good thing, given the years of stagnation. The economy grew at an annualised rate of 4.1 percent in the first quarter as consumers regained confidence. In April Mr Abe signed up to talks on the Trans-Pacific Partnership (TPP), a regional free-trade area, committing Japan to opening up uncompetitive industries. He also promised to overhaul the electricity industry. [Source: The Economist, June 15, 2013]

Martin Fackler wrote in the New York Times, ““The success of Abenomics has thrust Abe “into an unusual role for a Japanese prime minister, a generally colorless bunch who make decisions behind closed doors. Mr. Abe has become his country’s cheerleader in chief, proclaiming to audiences that “Japan is back” and even sharing personal details most Japanese politicians eschew. Referring to his own humiliating departure from his first term as prime minister, brought on by a stress-related illness, Mr. Abe tells people that they, too, can recover. “It is my job to awaken Japan from the spell of prolonged deflation and lost confidence,” he declared in a recent speech to business leaders in Tokyo. Still, Mr. Abe has enviable approval ratings as high as 70 percent. And after years when Japan seemed only to be a hard-luck story, the foreign financial media have begun to gush again, with one declaring that Japan had its “mojo” back. [Source: Martin Fackler, New York Times, May 20, 2013]

Some business leaders have even picked up Mr. Abe’s hopeful, “we’re all in this together” tone. In a scene reminiscent of Japan’s bubble-economy years in the 1980s, Honda positioned three Formula One racing cars in front of its headquarters in downtown Tokyo before the announcement that the company was rejoining the sport. “We hope our re-entry in F-1 helps Japan become vibrant again,” said Honda’s president, Takanobu Ito.

Abenomics Stimulates Consumer Spending

Martin Fackler wrote in the New York Times, “After years of grinding malaise, Japan suddenly has some of its bling back. A humbled Sony — once a titan of Japan Inc. — recently sprang back into the black for the first year in five years, courtesy of a plunging yen. Even some of Japan’s wary consumers are beginning to indulge. At the plush Takashimaya department store in Tokyo’s financial district, a clerk reported that $20,000 watches had become hot sellers. And a cut-rate sushi chain, which flourished in difficult times, just started a line of upscale restaurants for customers newly able to afford “petite extravagances.” “Young people even in their 40s don’t remember Japan’s good times,” said Hiroshi Sato, a 64-year-old executive treating himself to one of Takashimaya’s fancy watches. Choosing one from a black velvet tray, he explained his purchase as a bet on Mr. Abe’s success after two decades of his predecessors’ failures. “I’m hopeful,” he said, “that this one is finally the real recovery.” [Source: Martin Fackler, New York Times, May 20, 2013]

“So far, that optimism appears to be largely limited to the nation’s well-to-do, including its tiny stock-holding class, and the weakening of the yen is creating tensions with its Asian neighbors. But if the optimism spreads, Japan will have taken a crucial first step toward recovery, persuading its famously cautious savers to spend their money to help revive the economy. “This is Japan’s best chance in 20 years to escape from its deflationary mind-set,” said Hajime Takata, chief economist at Mizuho Research Institute in Tokyo. That Japan would try such a seemingly radical policy path after years of political paralysis reflects a newfound feeling of urgency. With China’s economy and territorial ambitions growing, the Japanese have begun to see the potential dangers of resigning themselves to what many have called a “genteel decline.”

“Koshin Yamada, a 31-year-old hairstylist, is also hopeful. Strolling down Ginza’s boutique-lined main drag with a kimono-clad woman on each arm, Mr. Yamada said he made so much money in the stock market that he could buy a new sport utility vehicle and treat his friends to a performance at the nearby Kabuki theater. “Stock prices suddenly started going up for the past few months thanks to Abenomics,” Mr. Yamada said. “I hope they keep going up.” In other signs of optimism among the well-heeled, the JTB travel agency has reported surging numbers of reservations for its $10,000 business-class tours to London. And sales of condominiums in Tokyo are up by nearly 50 percent from a year earlier, according to the Real Estate Economic Institute, with units priced over $1 million proving popular.

“With the price hikes coming, consumers feel it’s time to buy,” said Tadashi Matsuda, the institute’s chief researcher. At the Takashimaya department store, the signs of renewed confidence are palpable. Kaori Nirei, 52, out shopping with her mother and 23-year-old daughter, spent $4,000 on dresses, shoes and jewelry. “The bill was twice as much as what I’d plan to spend, but I don’t mind,” Ms. Nirei said. “I can’t believe all the people shopping. And not just shopping, but buying.” Even some who are not doing as well acknowledge the changes Abenomics has brought. Minoru Kimura, who sat alone in a corner of an electronics store in Ginza last week drinking canned coffee, said he regretted missing out on the current rally. “I wish I had bought stocks,” said Mr. Kimura, 61, who retired last year. “My friends who did look so happy, going abroad and all.”

Rises in GDP. Stock Prices and Consumer Spending

Abe as Super Mario at the Rio Olympics

In early May 2013, Tomoki Matsubara wrote in the Yomiuri Shimbun, “Expectations for Abenomics have apparently shifted the economy into a positive cycle, as seen through increased personal spending, the gradual expansion of corporate production and an improvement in unemployment. Average household spending in March rose 5.2 per cent from a year before in price-adjusted real terms, the Internal Affairs and Communications Ministry said. Average spending by households with two or more members stood at 316,166 yen, the sharpest growth in about nine years since February 2004, when the figure rose 5.3 percent. The growth was due to an increase in personal spending on such high-price items as wristwatches and on eating out at family restaurants and other places. [Source: Tomoki Matsubara, Yomiuri Shimbun, May 2, 2013]

“With the increased consumer spending, corporate production activities are also are expanding. Industrial production in March rose 0.2 percentage point from the previous month, standing at 89.8 out of 100 for the base year of 2005, marking the fourth straight monthly increase, the Economy, Trade and Industry Ministry said in a report Tuesday. In the January to March period, the production index rose 1.9 points from the previous quarter due to increased production of automobiles and other goods, the first hike in four quarters. Employment is also recovering as corporate activities accelerate. Japan's jobless rate came to 4.1 per cent in March, down 0.2 percentage point from the previous month, hitting the lowest level since the 4 per cent marked in November 2008. Koya Miyamae, an economist at SMBC Nikko Securities Inc., said the economy is turning around. "The economy has definitely entered a virtuous cycle. High stock prices have improved personal spending and corporate production activities, which favorably affected employment," Miyamae said.

In mid-May 2013, the Yomiuri Shimbun reported: Japan’s gross domestic product during the January-March quarter rose 0.9 percent on a real basis, or 3.5 percent on an annualized basis, from the previous quarter, the Cabinet Office said. The seasonally adjusted GDP growth rate, which excludes the effects of price fluctuation, marked the second straight quarter of growth. The positive growth was mainly attributed to an about 0.9 percent increase in consumer spending, which accounts for about 60 percent of the nation’s GDP. The increase in consumer spending is thought to have resulted from high expectations among the public that Prime Minister Shinzo Abe’s economic policy, dubbed Abenomics, will result in economic recovery. The data indicated the Abe administration’s economic management and the Bank of Japan’s quantitative and qualitative monetary easing have proven effective. Akira Amari, state minister for economic and fiscal policy, said at a press conference, “Steps toward an ‘extraordinary’ level of economic recovery have begun thanks to the implementation of ‘extraordinary’ policies.” [Source: Yomiuri Shimbun, May 17, 2013]

“Consumer spending was the main impetus behind positive GDP growth as purchases of cars and other durable goods rose 3.1 percent. New car sales also increased as the downward rebound from the end of a government subsidy program for eco-friendly cars finished its cycle. Other goods, such as spring clothing, also enjoyed brisk sales. Exports also increased 3.8 percent, rising for the first time in four quarters, due to the depreciating yen and a pickup in other economies. Automobile exports to the U.S. market were especially brisk. Housing investments increased 1.9 percent as houses damaged by the Great East Japan Earthquake were rebuilt and more people decided to buy houses before the likely consumption tax hike.

Japanese stocks (Nikkei 225)

Nikkei Hits a High as Japan Sustains Its Growth

In early December 2013, Reuters reported: “Japan's Nikkei share average rose to its highest close in six years as a slide in the yen on the back of speculation of further monetary easing from the Bank of Japan triggered buying in a wide range of large cap stocks. The Nikkei ended 0.6 percent higher at 15,749.66, its highest close since Dec. 12, 2007. The broader Topix index gained 0.3 percent to 1,262.54, with 2.69 billion shares changing hands, hitting a more than one-week high. The dollar hit a six-month high of 103.38 yen, also bolstered by data showing the U.S. Institute for Supply Management's index of national factory activity rose in November to its best showing since April 2011. [Source: Reuters, December 3, 2013]

Hiroko Tabuchi wrote in the New York Times, “Japan’s long-underperforming economy shows signs of sustained growth, bolstered by the aggressive monetary policies of the Bank of Japan — policies pushed by Mr. Abe. The stance of the Bank of Japan, the central bank, has also helped weaken the yen, which has been a boon to the country’s exporters. The bank’s Tankan survey showed that sentiment among Japan’s big manufacturers had improved in the three months through September, for the third consecutive quarter. Last month, the government revised upward Japan’s gross domestic product growth rate for the April-June quarter to an annualized 3.8 percent, far higher than its initial reading of 2.6 percent, thanks to robust capital investment. [Source: Hiroko Tabuchi, New York Times, October 1, 2013 ***]

“Consumer prices rose 0.9 percent in August from a year earlier, indicating that Japan is emerging from 15 years of deflation, the damaging decline in prices that has sapped the country’s ability to grow. A successful bid by Tokyo to host the 2020 Summer Olympics has added to hopes of a Japanese economic resurgence. Mr. Abe has pressed Japanese companies to respond to the economic upswing by swiftly raising wages and expanding employment. He worries that if there is no flow of wages from the corporate sector, households will be hit by a one-two punch of a higher sales tax and rising prices, freezing personal consumption. If spending does slump, hurting growth, Japan could relive its nightmare of 1997, the last time the country raised the sales tax rate, to 5 percent from 3 percent. Japan fell into a deep recession after that, though many economists attribute the downturn not to taxes but to the Asian financial crisis and the weakness of Japan’s banking sector at the time. ***

yen versus dollar

Yen Reaches 123.5 to the Dollar: a 12-Year Low

In May 2015, the yen reached123.5 to the dollar: a 12-year low. Bloomberg reported: The yen fell to its lowest level in 12 years against the dollar as the monetary policies of Japan and the U.S. are seen diverging further, prompting debate among officials about whether the depreciation is too rapid. The yen briefly pared losses after Japanese Finance Minister Taro Aso described the drop in recent days as “rough”. The yen’s decline comes as signals from the Federal Reserve that it’s preparing to raise interest rates sharpened a split in policy with Japan’s record stimulus. [Source: Andrea Wong and Lukanyo Mnyanda, Bloomberg, May 28, 2015 /*/]

“The yen’s 30 percent drop since 2012 is driving record profits at Japan’s biggest companies, helping the nation’s stocks toward their longest rally since 1988. BOJ Governor Haruhiko Kuroda reiterated that he’ll adjust monetary stimulus if needed to meet his inflation targets. The greenback, meanwhile, has strengthened versus all 16 of its major peers since May 22, when a report showed a key U.S. inflation measure rose faster than economists predicted and Fed Chair Janet Yellen said she expected to raise interest rates this year. “The move has been mainly against the yen in terms of dollar strength,” said Fabian Eliasson, head of U.S. corporate foreign-exchange sales at Mizuho Financial Group Inc. in New York. /*/

“Japanese officials have expressed concern about the pace of the yen’s decline, which has been spurred by an unprecedented bond-purchase program to help boost the economy. “You will potentially get even more risk of jawboning by Japanese officials over the next couple of days,” said Todd Elmer, a Singapore-based currency strategist at Citigroup Inc. “As the price action demonstrates, we’re not going to see a huge impact from these comments, so long as the upward momentum on the dollar probably remains in place.” /*/

Impact of Yen’s Rapid Descent on Japanese Businesses

According to to Nikkei: While the yen’s precipitous decline against the dollar is a boon to big exporters, it will squeeze the profits of smaller companies by raising energy and material costs, limiting the support a soft home currency typically lends to the entire economy. Exporters are set to reap the benefit. Every 10 yen drop in the exchange rate versus the dollar translates to a 1.9 trillion yen jump in operating profit for listed companies, according to calculations by Mizuho Bank.” [Source: Nikkei, September 19, 2014 \=]

With the yen at 110 to the dollar, “automobile companies would enjoy a 600 billion yen boost overall, while machinery and electronics makers would tick up 1.2 trillion yen. These companies would see particularly large gains because a weak home currency would expand their yen-based earnings at overseas units. A weak yen would also boost the tourism industry, which has seen a surge in overseas visitors. \=\

“But export volume has not actually increased, since more companies are moving production abroad. Without an higher exports, subcontractors would not see increased orders, and smaller enterprises would face rising material costs. Unlisted companies, including the service sector, would see profits shrink by 1.2 trillion yen, according to Mizuho Bank. While export-led issues have done well on the exchange, businesses that rely on domestic demand, such as paper maker Oji Holdings, have been weighed down by higher costs. A soft yen no longer serves as a universal driving force for stock prices. \=\

“The weaker yen would also hurt households. A shift in exchange rates from 100 yen to 110 yen against the dollar would mean a 3.2 percent hike in electricity prices and a 1.7 percent jump in the cost of food, according to Toshihiro Nagahama at Dai-Ichi Life Research Institute. With consumers already hard-pressed by April’s consumption tax hike, it is crucial to maintain a virtuous cycle where larger corporate profits translate into higher wages, which would then boost consumption. \=\

Japan’s Nikkei Hits Highest Level in More Than 18 Years

The yen’s 30 percent drop between late 2012 and 2015 drove record profits at Japan’s biggest companies, helping the nation’s stocks toward their longest rally since 1988. Japan shares had had a steady run since from October 2014 through the spring and early summer of 2015 when the Nikkei 225 broke through the 20000 mark.

In June 2015, Chao Deng wrote in the Wall Street Journal: “Japan’s stock market rose to its highest level in more than 18 years Wednesday, buoyed by optimism that Greece is moving closer to a bailout deal with creditors, while China shares continued to gain their footing following a volatile streak. The Nikkei Stock Average ended up 0.3 percent at 20868.03, its highest close since Dec. 5, 1996. [Source: Chao Deng, Wall Street Journal, June 24, 2015 |+|]

Japan shares have had a steady run since October. Support has come from buying by the government’s huge pension fund, a weaker Japanese yen and buying by foreigners. The Nikkei last broke through the 20000 level in late April. Local investors are also more interested in equities as Japanese bonds are returning low yields. The Japanese yen was last at 123.83 against the U.S. dollar, strengthening from 123.95. The Tokyo Stock Exchange Mothers index of startup companies rose to a new year-high following a Nikkei business daily report saying that the operator of the index, Japan Exchange Group, will allow futures index trading in mid-2016.

Company information session

Top Japanese Firms See Lion’s Share of Stock Growth

In February 2105, Tomoaki Nonaka and Hiraku Iwasaki wrote in the Yomiuri Shimbun: “Among domestic companies, manufacturers such as automobile and electronics companies with high shares of overseas sales have been performing well. They have been serious about cutting costs since the Lehman Brothers collapse. Many major electronics companies have undertaken drastic structural reforms and put stress on growth fields such as home and in-car devices. In addition, due to the weakening yen, yen-equivalent profits from overseas operations have increased. But, many domestic demand-oriented companies are struggling in terms of stock prices. Norihiro Fujito of Mitsubishi UFJ Morgan Stanley Securities Co. said, “The extent to which wage increases are agreed at shunto [spring wage negotiations] holds the key to an economic recovery.” [Source: Tomoaki Nonaka and Hiraku Iwasaki, Yomiuri Shimbun, February 20, 2015 /=]

“In terms of market capitalization, Toyota Motor Corp. tops the list, leaving the rest far behind, with its current aggregate market value standing at ¥27.34 trillion. With its profits climbing sharply in overseas markets, especially the United States and newly emerging economies, the total value of Toyota shares has shot up about 30 percent compared to 2000. Japan Tobacco Inc. has enhanced its performance remarkably in Russia and other countries, leading to a market capitalization about 4.5 times as large as in 2000. /=\

“Conspicuous among companies ranking high on the market capitalization list are those successful in expanding business activities abroad. As things stand, “Companies aggressive about boosting business activities overseas have obtained high market evaluations,” said Kayoko Ota, a senior analyst at SMBC Nikko Securities Inc. /=\

Abenomics: A Possible Model for the U.S. ?

Don Lee wrote in the Los Angeles Times: “After two decades of economic stagnation, once-mighty Japan is beginning to revive — under policies that some experts say could offer lessons to the still-struggling economies of the United States and Europe. While the Eurozone tries to break out of recession and the U.S. economic recovery remains anemic, Japan has begun to grow at an encouraging rate. The shock-therapy policies of Prime Minister Shinzo Abe have helped Japan's economy expand for three straight quarters at a pace faster than that of the United States. Its stock market has surged more than 50 percent in less than a year. Leading automakers and even long-struggling electronics firms such as Sony Corp., beaten down by Apple Inc. and Samsung Electronics Co., are reporting a jump in profits. [Source: Don Lee, Los Angeles Times September 2, 2013 \=]

Japan's struggles with deflation and a rapidly aging society are in many ways unique, but some of the problems that have long trapped Japan, including sagging incomes and structural weaknesses, are similar to those dogging the U.S. and Europe. "It may have quite a lot to teach us," Joseph Stiglitz, the Nobel laureate economist, wrote recently. "If Abenomics is even half as successful as its advocates hope, it will have still more to teach us." \=\

Japan's central bank has begun to pump more cash into its economy, lifting the nation's exports by reducing the price of Japanese products in the global marketplace. In addition to adopting strong monetary policy, Abe has boosted government spending to put more money into the pockets of Japan's citizens. The U.S. and Europe, by contrast, have largely emphasized cutbacks, an approach economic studies suggest have slowed job creation and overall growth. And Abe is preparing a series of structural reforms, including changes in taxes and labor rules, in the hopes of sustaining the nation's growth long term. "This time, Japan's economic recovery is different from the past," Akira Amari, Abe's chief economic minister, said in an interview. "We are matching fiscal, monetary and growth policies." \=\

“A stronger Japanese economy, the world's third largest, would help boost global demand. And if Abe can make good on his growth goals, Japan would probably be held up as a model for making tough structural reforms that many countries, including the U.S., have tended to avoid as they have relied instead mostly on monetary stimulus to support growth. For the U.S., important structural reforms would include policies to bolster infrastructure investment and the skills of American workers, said David Dollar, a senior fellow at the Brookings Institution. "As the rest of the world looks at the United States' recovery, it's worried about too-rapid withdrawal of fiscal and monetary stimulus," he said during a recent briefing on the upcoming G-20 summit. "And it would like to see the United States move ahead on some of these structural reforms that would make the U.S. economy more competitive and create a solid foundation for U.S. growth going forward." \=\

“As in the U.S., many of the key structural changes that Abe is considering are fraught with political and bureaucratic obstacles, but Abe has a real chance to push his policies through Japan's bureaucracy and long-paralyzed legislature. His party won a convincing election this summer, reclaiming control of both chambers of Parliament. \=\

Image Sources: Wikimedia Commons

Text Sources: Ministry of Foreign Affairs, Japan; Library of Congress; Japan National Tourist Organization (JNTO); New York Times; Washington Post; Los Angeles Times; Daily Yomiuri; Japan News; Times of London; National Geographic; The New Yorker; Time; Newsweek; Reuters; Associated Press; Lonely Planet Guides; Compton’s Encyclopedia; Smithsonian magazine, The Guardian, Yomiuri Shimbun, The New Yorker, AFP, Wikipedia, BBC. Many sources are cited at the end of the facts for which they are used.

Last updated September 2016