What is the "Abenomics"?
Paul Sheard of Standard & Poor's
Abe no what?
Q&A with Paul Sheard of Standard & Poor's
"Abenomics" is essentially two things. One is a policy thrust to end Japan’s chronic deflation. The other is a policy thrust to try to raise real growth. The approach to ending deflation is a very aggressive monetary policy. Abe was able to engineer that because he had the opportunity to replace the governor of the Bank of Japan and the two deputies. Abe has marketed his economic policy program as having three “arrows”: a plan to end deflation and combat the strong yen; “flexible” (that is, somewhat expansionary) fiscal policy management for two to three years; and a growth strategy, centring on deregulation and attempts to promote innovation and improve industrial competitiveness (structural reforms). The aim, after years of deflation and low real growth, is to achieve 2% consumer price inflation and 3% nominal GDP growth. These are ambitious targets.
Shinzo Abe, prime minister with his 3 Arrows or more...
What is the most significant part of Abe’s growth policy?
It’s really a very conventional policy mix: end deflation and try to raise growth through structural reform. Every administration says they want to do the latter. It’s really the former, ending deflation, that is in substance most significant here. What is revolutionary is that the previous governor of the Bank of Japan said, in effect: No, you can’t do it. Or, the way to do it is through structural reform. Abenomics has structural reform and reflation as the two thrusts. It has decoupled the two, whereas they were linked under the previous administrations’ thinking.
Bank of Japan Governor Haruhiko Kuroda
Might it end Japan's economic stagnation?
I am more confident that we’re going to see a change in the macro atmospherics in Japan through reflation, because the structural side is just much harder to do, and it takes longer. Governor Kuroda has surprised the world with his clear and decisive communication and bold policy action. He has come in and said: I can do this. Give me two years. And he has greatly simplified the framework. But brave words need to be backed up by very aggressive action. And the announcement that they will double the monetary base, double the duration of the Japanese government bond (JGB) portfolio, double the
amount of risk assets and if that’s not enough do more, is certainly setting sail in the right direction.
by Paul Sheard US based Chief Global Economist Standard & Poor's, he worked 17 years in Tokyo and was a guest speaker at the press club, Tokyo June 19th 2013, emceed by Anthony Rowley, Tokyo bureau chief of the Singapore Business Times.