▶ Your Answer :
Abenomics
refers to a series of economic policies by Abe, the prime minister of Japan, to
revive sluggish Japanese economy. These new approaches mainly target for
devaluation of Yen by releasing money to the market. The value of Yen would
decease which would in turn lead to increase in export. Abe believes this will stimulate
Japanese economy, and until now, it seems quite successful.
A
loosen monetary policy and fiscal stimulus has brought some positive impacts on
Japanese market. First, stock market is soaring, up to 50 percent compared to 2008.
People will spend more as their asset increases, and this will make companies
to perform better and seek for another investment. As the country had undergone
prolonged deflation for last 20 years, increased consumption is indeed a good
news. Second, within a few years, trade balance of the country will get better
thanks to depreciation of Yen. In short term, it is highly probable that
Japanese trade balance will not improve, or even might get worse due to J-curve
effect. But in long term, companies can enjoy better environment for
competition in international market, which can lead to more profits and
investment.
However,
it is doubtful whether this economic progress would last long as Abe faces a number
of serious fundamental problems. To point out a few, the prime minister should
keep in mind that effects of lower value of Yen have two sides. The negative
side will cause inflation as the price of imported goods increases. This poses
a risk to staggered economy because people might decrease their consumption and
investment due to higher cost in natural resources and products.
Moreover,
Japan’s debt is ever rising, which
concerns the world that the country might fail to manage it. Monetary policy,
or quantitative easing is not free. The country, or the central bank has to
issue bonds and borrow money from investors. It is true that Japan is fairly
safe from default as most of government bonds are carried by its people.
However, even now the country’s sovereign debt is about
twice its natural profits, and this will deteriorate its credibility. In fact, credit
default swap premium, or CDS premium is rising. This shows people are now
skeptical about the sustainability of Japan’s economy.
Japanese
people are expecting much from Abe to revitalize the country from stagnation
and long-lasting nightmare of nuclear catastrophe. Political environment is
stable and an approval rating is high, more than 55%. Abe government should
implement structural reforms and other series of policies that convince both its
people and the world that Japan is back.
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