Does Abenomics need a reboot?
My favourite commentator on Japan, Peter Tasker, has written a blog asking whether it’s all about to go wrong for Japan. His evidence is an interview on Reuters by the guru of Koichi Hamada suggesting that ‘the public is better off having prices fall, not rise…’ and that now is time for the next consumption tax rate rise. If you don’t follow Japan, all you need to know about that is that previous ones have proven highly contentious.
Hamada may just be accepting reality. Nominal GDP growth in Japan has been negative again over the past two quarters and the country is also flirting with deflation anew. As the employment participation rate (16-64 year olds) stands at 77%, his comments are consistent with what’s happening – if you are in employment, deflation is beneficial.
The bigger point Peter makes is that Abenomics needs a reboot. After six years the effects are fading, along with QE round the world. Peter’s recipe is to cancel the consumption tax rise, to target bond issuance rather than the yield curve, and to wait patiently for tight employment to have its effect on inflation. I’d add to that the boost that the Rugby 2019 World Cup and 2020 Olympics will give Japan.
And the stockmarket? I’ve been lukewarm for the past 12 months and remain that way. There’s scope for upside if some of Peter’s suggestions are followed. And in the long-term there’s still plenty of good news on corporate governance, despite the Nissan/Ghosn furore. However, I suspect some patience is required. At home, corporations are still saving rather than spending, and abroad economies are slowing and the yen looks like strengthening. Plus, of course, if the Bank of Japan were to target bond issuance, it might sell some of the equities it has purchased over the past nearly five years.