Japan goes all out for renewal

by Michael Collins, Investment Commentator at Fidelity

May 2013

Quirky terms accompany a daring experiment that is underway on the world’s second-biggest modern economy. “Abenomics” formulated by the “reflationists” is about firing “three arrows” to thrust Japan’s economy out of two decades of deflation-ridden, stop-start growth. The weapons include full-bore monetary and fiscal policy and structural reform. If successful, policymakers around the world could adopt the strategy. Second-time Prime Minister Shinzo Abe, whose Liberal Democratic Party prevailed in lower-house elections in December, wants his brand of economics to end how Japan best serves as a warning of the damage asset bubbles can inflict. The country has failed to perk its economy since the bubbles popped around 1990, despite interest rates at almost zero, the invention of quantitative easing in 2001 and massive government fiscal stimulus that has boosted net public debt to about 130% of output (and gross debt beyond 230% of GDP). The reason is that the monetary and fiscal stimulus have been muddled, half-hearted and randomly applied.


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