Is Abenomics Working?

If American pop culture has Beiberization, the Japanese have “Abenomics.” It’s nothing more than just putting one man’s economic game plan into action. That man is none other than the Prime Minister of Japan himself, Shinzo Abe.

As I’ve discussed in my previous blogs, Abe’s measures aren’t exactly conventional or conservative. This is why Abenomics has gotten a lot of criticisms from the world over. However, six months since Prime Minister Abe came into power, it would seem that Abenomics is working its magic.

For one, key policymakers both at home and abroad see better times ahead for Japan. The BOJ, in its most recent rate statement, held off from making any changes to monetary policy because it believes that the economy is recovering.

While global economic growth seems to be slowing down, BOJ Governor Haruhiko Kuroda pointed out that Japan appears to be doing fine, as supported by robust consumer spending and a pick-up in capital expenditure. Some analysts say that the bank’s most recent statement, wherein Kuroda praised the economy, is perhaps the most optimistic that we’ve heard from the BOJ in two-and-a-half years!

Naysayers may think that BOJ could just be biased. (After all, Abe handpicked Kuroda himself to head the central bank.) However, officials over at the International Monetary Fund (IMF) also think that Japan is headed for better times. In the organization’s latest report, the estimate for Japan’s growth in 2013 was revised up to 2.0% from a measly 0.4% which was calculated in April.

Economic reports also support this newfound optimism for Japan. As I reported earlier this month, the much-anticipated Tankan survey for Q2 2013 showed that businessmen have become more confident on the economy. To top it off, consumer prices stopped falling for the first time in seven months in May. Also, machine orders for the same month surged to 10.5% after decline by 8.8% in April.

While the recent pick-up in growth seems unexpected to some, Abe’s government doesn’t seem to be surprised nor are they in a celebratory mood. This is because of two reasons.

One, economic recovery has long been predicted to surface in Q2 2013. The government laid a blueprint for his economic reforms and these signs of economic growth are popping out right on schedule.

Secondly, the government knows very well that it still has a lot on its plate.

The next milestone for the government is winning the upcoming upper house elections in July 21. This election is crucial for Abe as gaining a majority in the upper house would make it easier to pass new laws and implement policies. Analysts say that because of the recent strength in the economy, Abe will likely post a landslide victory which could mark the end of a six-year political deadlock.

Although the recent improvements in the Japanese economy cannot be ignored, it’s also equally important to acknowledge that we’re still early on in Japan’s economic reform. There is an overall sense of caution among the people whether or not the recent growth we’ve seen in Japan would be sustained. However, if it carries on, perhaps the BOJ will gain more confidence and feel less pressured in intervening in the markets to weaken the yen. That’s just my two cents! What do you think?