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Group3 Day4
Shun-Yi LI
Yi-Ping CHEN
Background Introduction
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Despite years of near-zero interest rates,
Japan has suffered chronic deflation over
the two decades since the bursting of its
real estate bubble in the late 1980s.
The Japanese government raised value
added tax rates from 3% to 5% in 1997,
which worsened the recession and
deflated the economy. The nominal GDP
growth rate was below zero for most of
the 5 years after the tax hike.
So existing policies do not work. Just
worse.
GDP growth before Abenomics
CPI YoY before Abenomics
Defination of Abenomics
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Abenomics(December 2012) refers
to an aggressive set of monetary and
fiscal policies, combined with
structural reforms, geared toward
pulling Japan out of its decades-long
deflationary slump.
Abenomics have three arrows
The BoJ will spend
117 billion dollars
on public work.
Agricultural
Health care
Energy market
Labor market
Pilot initiatives
Significant effect of 1st arrow
In early 2013, soon after Mr Abe took office, the central bank
duly launched a radical programme of quantitative easing.
Significant effect of 1st arrow
CPI shows inflation.
Significant effect of 1st arrow
The stock market soared.
Significant effect of 1st arrow
Will it work in the long term?
GDP growth
Some concerns from IMF
Concerns inside Japan: 1st arrow
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Mr. Kuroda (central-bank governor) wanted the government
to stick with the plan to raise the consumption tax to 10.
But soon after the central bank’s action, Mr. Abe postponed
the rise anyway until April 2017, arguing that the economy
could not bear it.
Mr. Kuroda is making it clear that he does not believe Mr.
Abe is trying hard enough to bring the deficit down.
Mr. Kuroda promised to push inflation up to 2%. The Bank
of Japan may not be doing enough to achieve this. Prices
are at a standstill.
Mr. Abe now appears to be undermining Mr. Kuroda’s ability
to reach it.
Concerns inside Japan: 2nd arrow
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The main point of contention is fiscal policy with a primary
budget deficit of 6.6% of GDP.
Even if the economy grows by 3% in nominal terms in each
of the next five years—an optimistic assumption—the
government says it will need to find an extra ¥9 trillion to
balance the budget, before interest payments, by 2020 as
planned.
Thank you.