The yen has been on the sidelines this week. It is flat against the dollar. Japanese stocks and bonds are also little changed. The benchmark 10-year bond yield has fallen by less than two bp on the week, the least among the major bond markets.
When viewed through the lens of trade deals negotiated with the Association of Southeast Asian Nations (ASEAN), Australia, and the Trans-Pacific Partnership (TPP), Japan has shown recent willingness to engage in global free trade. However, is there any indication that these deals are striking a chord where it matters most, with Japan’s services sector, which comprises 70% of its economic activity?
Around the world, Japanese Prime Minister Shinzo Abe is perhaps most famous for his ‘Abenomics’ program to revive Japan’s economy. So far, it has not worked — mainly because it has not really been tried. Only the first of the famous ‘three arrows’ — monetary stimulus — has been fired. The indispensable third arrow, structural reform, remains lots of nice-sounding targets but little strategy to achieve them.
Investors have been more focused Japan’s aggressive monetary policy and the structural reforms promised under Abenomics than fiscal policy. However, the Abe government is taking a new fiscal initiative.
It has taken on a new more ambitious goal, which was unveiled yesterday, and will come up for a vote by the cabinet next week. After reiterating its goal of eliminating the primary budget deficit by 2020, it provided an interim target. It will strive to achieve a 1% primary deficit in FY2018.
Japan is coming under increasing scrutiny as the 70th anniversary of World War II approaches and Prime Minister Shinzo Abe moves to reform Japan’s defence policy. Recent concerns over hate speech and the right-wing nationalistic rhetoric of revisionist groups like Nippon Kaigi (Japan Conference), Sakura Channel, and Zaitokukai (The Association of Citizens against the Special Privileges of the Zainichi — that is, the resident Korean population) have led commentators to conclude that Japanese people are becoming more nationalistic. However, is this really the case?
Emerging from last year’s recession, many in the financial industry were curious about the Japanese government’s take on its own recovery programs. While these programs included a substantial stimulus package, they also included increases in sales tax and capital expenditures. However, based on a recent statement issued by the Bank of Japan, the nation apparently feels quite positive about its recovery progress; a fact signaled by its announcement of plans to maintain the Bank of Japan’s massive stimulus program.
The Japanese economy grew at an annualized 3.9 percent from January to March, which is beyond an initial estimate of 2.4 percent, due to increased spending among consumers and the business sector. The economy itself expanded 1.0 percent, surpassing a previous estimate of 0.6 percent. Analysts predict slower growth from April to June.
As many countries around the world, Japan suffered a recession following the downturn of the US economy in 2008. While some economists and financial experts had expressed concerns about Japan’s ability to successfully emerge from its stalled economic condition, a report by the nation’s statistics agency indicates that the country’s upward trend accelerated unexpectedly in the first quarter of 2015.
Economists are proclaiming a victory for Japan’s QE-fueled economy as the country announced a second quarter of expansion that beat expectations.
Japan saw 2.4% annualized growth in the first quarter of 2015, the fastest rate of growth in a year and slightly stronger than what is expected for the United States in 2015. While estimates for American growth continue to face downward revisions, the Japanese are surprised to see a strong expansion even despite well-known demographic headwinds stifle aggregate demand.
Japan’s economy grew 0.6 percent in the first quarter, surpassing previous expectations of 0.4 percent growth. The Japanese economy grew 2.4 percent annually from January to March, which outgrew U.S. annual growth of 0.2 percent.
