Japan’s Economic Latest Stimulus Measures Expose Flawed “Abenomics”
Japan’s unrolling this week of a stimulus plan of JPY 28.1-T (US$274-B) as part of Prime Minister Abe’s latest installment of his shaky “Abenomics” economic policy mix, lacks the equivocal allocations and long-term vision necessary to fundamentally kickstart the nation’s ailing economy.
As evidenced by the stock market’s fall, as the plans behind the latest stimulus measures failed to impress global investors, and the Japanese Yen’s subsequent surge following the lackluster announcement, the new measures may fall some way short of Mr. Abe’s push to shore up the economy and counter massive costs and public debt related to a growing demographic crisis here, local analysts said.
“While the size of the package unveiled on Tuesday was in line or in some cases exceeded market expectations, the allocation of the funds remains hazy at a time when global markets are looking to Japan for definitive solutions, principally, to its structural reform issues, not short term measures,” Hisao Katayama, a senior equity analyst at Nomura Securities Co. said.
The latest stimulus package, the third largest unveiled since Mr. Abe retook office in Y 2012, has been earmarked predominantly of infrastructure investment and enhanced welfare services, with the majority of the funds coming from fiscal loans and investment programs.
Actual government expenditure only amounts to some JPY 7.5-T, of which just JPY 4.6-T has been allocated for the current fiscal year, leading economists have pointed out.
Meanwhile, Japan’s national debt of a JPY Quadrillion (US$10-T) is around 240% of the nation’s GDP, and remains the highest in the industrialized world, and, coupled with Mr. Abe opting to further delay a scheduled tax hike for a 3rd time to Y 2019, the planned expenditure will almost certainly upset the government’s balance sheet, and while economic revival remains unknown, market confidence in the world’s third-largest economy will continue to be tremulous, experts attest.
Abe has pledged to maintain Japan’s fiscal consolidation goal of turning the primary balance into a surplus by F-Y 2020, a goal regarded as utterly unattainable according to a recent report by the International Monetary Fund (IMF).
And as a result of inherent monetary weakness, the stimulus plan will further tap into fiscal loans and investments, and, as has been the case in the past, see the government accrue theoretical finances to spur market investment and spending.
In this scenario, however, unprofitable entities can become temporarily liquid before failing, which pushes up state debt and financial institutions in turn tighten up their lending policies.
In addition, ultra low-interest loans may fail to stimulate capital needs and impact financial institutions who rely on corporate lending.
The lofty stimulus plan echoes Abe’s earlier loose fiscal policy. The prime minister came to power in 2012 promising to use the “3 Arrows” of monetary stimulus, fiscal stimulus and structural reform to boost economic growth, and drive inflation up to 2%, while tackling public debt.
But while the theory remains sound, the implementation has always largely failed, particularly with the 2nd and, more pertinently, third arrows misfiring.
Now 3.5 years into “Abenomics”, with consumer sentiment remaining poor and the yen continuing to rise against the USD, the overall economic situation in Japan remains largely unchanged.
Media and experts here have noted that the latest stimulus plan includes spending on numerous, large public programs, and even cash subsidiaries, scenarios that led to the government’s debt cycle decades ago, and, hence will have a negligible impact on sustained economic growth.
The government plans to allocate some JPY 1.7-T to building infrastructure to boost tourism and agriculture, and JPY 2.5-T to enhancing welfare such as nursing care and childcare.
The stimulus plan is to “pour money into large public projects that are already bankrupt,” said Kazuo Shii, chairman of the Japanese Communist Party, in recent remarks on the matter.
In an effort to boost personal consumption, the government will also launch a subsidy program to provide 15,000 Yen each in cash to low-income earners, a measure widely considered as ineffective to sustain long-term growth.
“Along with the central bank’s tepid easing measures recently, the Japanese government seems to be bailng out water from a sinking ship with a broken bucket, rather than addressing fundamentals, like building a boat that actually floats,” Mr. Katayama said.
“Throwing good money after bad, has done little for the economy in the past, and the future is still looking rather bleak so far as longer-term economic fundamentals remain mere rhetoric and not translated into definitive action and wholesale reforms,” the expert concluded.
By Jon Day and Yan Lei
Paul Ebeling, Editor