The dark side of Abenomics

The government on May 10 revised upward the growth rate of the nation’s gross domestic product for the January-March period. Previously it reported that the economy grow 0.9 percent or an annualized 3.5 percent in real terms from the previous quarter. It now says that the economy grew 1.0 percent or an annualized 4.1 percent.

Thus the government claims that the real economy is improving thanks to the Abe administration’s economic policy, which centers on massive monetary easing by the Bank of Japan.

But people should not be duped by the government’s public relations efforts. The dark side of Abenomics is raising its head. Stock prices have started to show erratic fluctuations. Institutional investors have made profits, but ordinary citizens are in no position to benefit from the stock market.

The fairly cheap yen, compared with the level prevailing during the days of the Democratic Party of Japan government, has helped improve the performance of export-oriented businesses. But the price rises of imported fuel and raw materials are translating into high electricity charges and high prices for food items. The government should give priority to stabilizing people’s lives and should flexibly cope with volatile economic conditions.

On May 23, the Nikkei Stock Average in the Tokyo Stock Exchange dropped more than ¥1,100, as hedge funds sold a large amount of Japanese stocks because of a view that the United States will pull back on its monetary easing.

The “third arrow” of the Abe administration’s growth strategy also has disappointed the market. The Nikkei index dropped more than ¥843 on Thursday to come down to a level prevailing before the BOJ’s massive monetary easing.

Fluctuation in the foreign exchange market is great. The yen which had weakened to more than ¥100 against the dollar strengthened to a level slightly lower than ¥94 at one point Thursday. The fluctuation means that the market players’ trust in the Abe administration’s economic policy is fluctuating.

The Bank of Japan led by Gov. Haruhiko Kuroda had hoped that its massive monetary easing would lead to a fall of long-term interest rates. On the contrary, interest rates have gone up. The resultant effect is an upward trend in interest rates for housing loans and loans for businesses. Mr. Kuroda apparently failed to accurately predict the movement in the national bond market.

The government and the BOJ must pay serious attention to the real economic conditions people are facing. The nation’s 10 major power companies and four major city gas companies will raise their rates in July for the fourth straight month because the prices of imported liquefied natural gas and crude oil have risen. Prices of food items such as ham and sausage are also rising.

There is no prospect that workers’ wages will rise. The Abe administration’s policy to achieve a 2 percent inflation in two years is likely to result in price rises without wage increases, and could even create economic bubbles.

Mr. Abe and other government officials should be aware that their economic policy could wreak financial havoc on many households, which in turn would stall domestic recovery. They should take steps that will create jobs and boost wages.

  • jeffrey takada

    The Kuroda/Abe pairing has resulted in some of the most asinine policies ever to emerge from a responsible national institution. One point: Japan is a relatively resource-starved exporting nation. Ipso facto, everything that is to be exported in finished form must first be IMPORTED in the form of raw materials, which will increase in price in negative correlation with the decrease in price of exported goods. This is basic logic. In the best of situations, it’s a wash. In the worst, as is happening now, manufacturers find it hard to source raw materials with a weakening yen and so the economy spirals downward. Utter folly. Second point: How is recklessly and flagrantly damaging the reputation of your currency supposed to give the market faith to support a lower interest rate?? If the BOJ starts mimicking the staggering drunk, foolhardy policies of the US Fed, their actions will only frighten bond holders who will demand higher interest. Japan’s debt levels can NOT sustain even 100 higher basis points of interest without imploding. The yen is not holding the world hostage as the dollar is; there is no “petro-yen.” Third point: Inflationary policies when the country is overrun with legions of fixed-income pensioners? What we are witnessing is either the most credulous government in Japanese history or the most cruel since the end of WWII. Abe has amply demonstrated that crippling diarrhea can apparently also issue forth from the brain.

  • JTCommentor

    I am no economist, but I think that inflation without wage growth is kind of obscure. I thought that for inflation to be sustained (phrase intended to be used in a neutral tone), wages had to go up. I thought it was one of the key ingredients to inflation. Can somebody clarify?

    • jeffrey takada

      Not really obscure, but also, not called inflation. The word they were looking for is stagflation, a word so scary that no one dare use it. Nonetheless, this appears to be where Japan is headed if the continue to pursue wrong-headed, manufactured inflationary policies.

  • Sho Takeda

    What was surprising for me was the author of this article was expressing his/her opinion strongly don’t you think? Well, actually the author said something right. I think what we Japanese need the most is an ability to question the authority, which would allow us to have transparency among our society. And by having it, we would be less disguised by politician’s “sweet temptations” befor elections.
    What is really problem is that so many Japanese people are not even interested in politics. They don’t know what’s going on or how their money is being treated. They can complain because they can’t find jobs or wage is not increasing. However, they wouldn’t try to change it. It’s so sad.

    • Balotelli2012

      Japanese are followers, not leaders anyone can fool these Japanese people into thinking they are Gods if they control Japan. Just gotta face the truth head on.