Japan’s economy extends its winning streak

Japan’s leaders have been praised in press this week following an impressive turnaround in the economy.

Japan’s economic growth has reached four percent, extending a winning streak which looks set to continue.

It comes after a period of trouble for Prime Minister Shinzo Abe and his cabinet.

“I’m sure Mr Abe will be very happy, particularly because other statistics such as industrial production are also strong,” said Masaski Kuwabara, an economist at Nomura.

Happy Abe

Mr Abe should be pleased with the timing of the good economic numbers, because they come following a period of political trouble for him.

He recently made an apology on national television following a corruption scandal.

But now he can claim that his economics policy, known as Abenomics, is showing many measurable signs of success. One of its key goals was to achieve an annualised growth rate of two percent and the current rate is double that.

Three Arrows

Abenomics is based on the concept of three arrows.

The first two arrows involve increased government spending and the injection of money into the financial system through the Bank of Japan.

This appears to have created a cheerful situation in which many people, including pensioners, have been spending some of their savings on new cars and electronic goods. That is in line with Mr Abe’s plan to stimulate the domestic economy, as well as to create benign conditions for Japanese companies to expand their overseas trade.

The third arrow of Abenomics is based on the concept of reform, which is more difficult to measure than economic growth. It is rather like watching lots of little arrows fired at a wide variety of targets, so it is hard to see which ones are on target. However, some reforms are tangible, such as increased support for new parents who want to take time off work to care for children. This is part of the government’s initiative to encourage more people to raise families and reduce the falling birth rate.

FT Praise

One of the most controversial parts of the economic growth plan has been the purchase by the Bank of Japan of government bonds, known in the jargon as a programme of quantitive easing, or QE.

It is often criticised for running up debt. But this week an editorial in the Financial Times supported the policy, suggesting it has been endorsed by strong economic growth.

The FT said the Bank of Japan is “following an appropriate campaign of stimulus which has brought one of the world’s more troubled advanced economies out of a serious funk and back to economic growth. It should continue to do so.”

America’s Federal Reserve and the European Central Bank are also involved in expensive QE programmes, although there are signs that they could soon start to taper them off. However, Japan is likely to continue with its extraordinary stimulus measures until it is sure Mr Abe’s arrows are on target.

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