Japan Hints At “Recovery” After 15-Year Deflationary Trend
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The world’s third largest economy is showing signs of recovery and reversing a 15-year deflationary trend as a result of its unconventional use of monetary policy, dubbed Abenomics, according to an annual government report published on Tuesday.
In its July report, the Cabinet Office said Japan’s economy “started to pick up from the beginning of 2013 and there are some indications it is turning around from its prolonged deflation.”
The world’s third largest economy is showing signs of recovery and reversing a 15-year deflationary trend as a result of its unconventional use of monetary policy, dubbed Abenomics, according to an annual government report published on Tuesday.
In its July report, the Cabinet Office said Japan’s economy “started to pick up from the beginning of 2013 and there are some indications it is turning around from its prolonged deflation.”
Deflation pushed down Japan’s real GDP by around 8.5 trillion yen ($85 billion) for three years since 2009, as a jump in real interest rates made companies reluctant to take out loans to boost investment, said the report.
But the pace of decline in consumer prices has slowed in recent months, as the pledge by Prime Minister Shinzo Abe’s administration and the Bank of Japan to conquer deflation has bolstered inflation expectations, the report added.
Furthermore, the sharp depreciation of the yen, triggered by the central bank’s aggressive monetary stance, has also driven up prices of imports, preventing deflation from worsening and lowering real interest rates, it said.
A recent survey by the Bank of Japan also showed that more than 80 percent of households expect consumer prices to rise a year from now, the highest ratio in nearly five years, a sign that the BoJ’s commitment to a 2 percent inflation target may be changing public perceptions that deflation will persist.
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The upbeat outlook comes after Abe’s ruling party won a decisive victory in the upper house elections on Sunday, ending three-years of parliamentary deadlock and giving him more legislative leeway to press on with his spending programme – dubbed Abenomics – aimed at boosting growth.
Calling his Liberal Democratic Party’s win “a supportive push” from voters for his economic policies of easy money, massive government spending and deregulatory reforms, Abe said he would continue to implement growth policies, including tax cuts on capital investments.
“Getting out of 15 years of deflation is no easy task – you can even call it a historic project. That’s what we’ll be concentrating on,” he said.
Related: Abenomics Beginning to Work, Says IMF
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