Japan Chair Platform: The Japanese Economy at Risk: Why Does Japan Need Structural Reform?
September 22, 2014
Abenomics: Still Fragile
Abenomics, the three-point economic revival strategy of Prime Minister Shinzo Abe, was introduced when he started his second term in November 2012. The strategy is based on the so-called three arrows consisting of the Bank of Japan (the Bank) making a massive purchase of Japanese government bonds (JGBs), agile government spending, and structural reform.1 The Bank increased its holdings of JGBs by 100.2 percent to ¥178.6 trillion ($1.72 trillion) by the end of August 2014,2 and the 2014 government expenditures budget was up 6 percent to ¥95.8 trillion ($922.9 billion).3 Both the stock and foreign exchange markets welcomed Abe’s policy. By the end of August 2014, the Nikkei Index had climbed 72 percent to ¥15,424 and the yen depreciated 31 percent to ¥103.8 per dollar in the Tokyo Market. Other economic indicators also reflect the near-term impact of Abenomics. The business conditions diffusion index (DI) in the March 2014 Tankan survey by the Bank improved to plus 12, signaling optimism about the economy.4 The ratio of job openings to applicants in June 2014 reached 1.1, the highest since June 1992. Further, real business fixed investment increased for four consecutive quarters since the second quarter of 2013, and increased a substantial 7.6 percent in the first quarter of this year.5
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