Not so happy birthday: Abenomics ages, challenges remain

Not so happy birthday: Abenomics ages, challenges remain

9:15pm EST

By Stanley White and Tetsushi Kajimoto

TOKYO (Reuters) – A year after Prime Minister Shinzo Abe took financial markets by storm with promises to revive the moribund Japanese economy, data showed growth slowed sharply and that his “Abenomics” policy mix is yet to secure a durable recovery. Growth in the world’s third-biggest economy decelerated in the third quarter after leading the Group of Seven industrial powers in the first half of the year, as capital spending, personal consumption and exports moderated.Thursday’s gross domestic product data highlighted the early successes of Abe’s aggressive monetary and fiscal stimulus, particularly in buoying domestic demand, and marked a fourth successive quarter of growth, the longest run in three years.

But the data also showed the difficulties of translating the feel-good factor into increased business investment or higher wages, which would indicate corporate Japan sees a longer-term pick-up in the economy.

GDP expanded at an annualized clip of 1.9 percent in the July-September quarter, slightly faster than expected by markets but still sharply slower than 3.8 percent growth in April-June and 4.3 percent in the first quarter.

“It is not something that boosts confidence if the outcome is considered an interim health report for Abenomics. Going forward, the key is whether domestic demand can lead growth,” said Hideo Kumano, executive chief economist at Dai-Ichi Life Research Institute.


Japan’s economy has improved dramatically since November 14, 2012, when Abe’s unpopular predecessor, Yoshihiko Noda, announced snap elections. That vaulted Abe into pole position and prompted investors to price in the effects of his promises of massive government debt purchases by the central bank, hefty government spending and steps to bolster longer-term growth.

Tokyo shares are up 68 percent in that 12 months and the yen has slid 19 percent, helping exporters and creating a wealth effect that has altered domestic and global psychology about Japan.

But those market gains essentially stalled in May, and skepticism is growing that Abe can deliver the tough decisions that would set Japan’s economy on a more sustainable growth path; for example, by letting companies fire workers more freely to open up a new dynamism in the sclerotic labor market.

Private consumption, which makes up about 60 percent of the economy, grew 0.1 percent in the September quarter, slowing sharply from 0.6 percent growth in the June quarter as falls in the stock market weighed on consumer sentiment.

Growth will quickly rebound as shoppers rush to spend before a national sales tax is increased to 8 percent from 5 percent in April, economists say. But Abenomics is struggling to gain traction on key areas that would indicate longer-lasting changes to the economy, such as capital spending and wage growth.

Core machinery orders, a key predictor of spending on factories, equipment and software, fell more than expected in September, data showed on Wednesday. A Bank of Japan (BOJ) policymaker warned of headwinds from soft overseas growth, underscoring the challenges facing Abenomics. <ID:L4N0IX0BD>

Still, a tighter labor market and signs from a few major companies of rising wages should support consumer spending in coming quarters, boding well for Abe’s push to foster self-sustaining growth and end 15 years of mild deflation.

The BOJ has warned that overseas economies are a little weaker than it had expected, but the central bank raised its GDP forecast for next fiscal year as the government is planning a 5 trillion yen ($51 billion) stimulus package to offset the impact of the sales tax hike.

Exports to Southeast Asia have weakened as large capital outflows out of those countries slowed growth. However, economists expect exports to improve going into next year as overseas economies stabilize.

The BOJ radically expanded its quantitative easing in April, which is aimed at achieving a 2 percent inflation target in roughly two years — although not all board members see that as a realistic goal.

Abe’s plan is to combine fiscal spending and economic reforms with BOJ monetary easing to pull Japan out of a decades-long economic slump.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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