summing up Abenomics
Abenomics is the name given in the press to the radical macroeconomic rescue policies promiseded by Japanese Prime Minister Shinzo Abe in his successful election campaign last year.
The idea is to try to end a quarter-century of economic stagnation through the firing of three “arrows”:
1. a massive increase in the domestic money supply
2. further stimulus through deficit government spending, and
3. structural reform legislation.
In many ways, this is an all-or-nothing bet.
Arrow #1, which is already in flight, has triggered in a massive 20%+ devaluation of the Japanese currency–and a consequent staggeringly large loss of national wealth. Arrow #2, which is in the bow, will add to Japan’s massive national debt–run up to dangerously high levels through decades of politically motivated but economically wasteful porkbarrel government spending.
The consensus view of economists throughout the world, which I believe is correct, is that this “all in” bet depends crucially on the success of Arrow #3. My view has been, and still is, that it will never leave the quiver.
For Japan’s sake, I hope I’m wrong.
the Japanese stock market as barometer
I’m writing this post to make two points.
1. One of the main arguments being used for the potential success of Abenomics in jump-starting the Japanese economy is the strong performance of the Japanese stock market since last July. This performance, however, is considerably less than it’s made out to be.
From the low point for Japanese stocks last July 26th to the peak of the market (so far) on May 22nd, the main indices rose by about 85% in local currency terms. They’ve since fallen by almost 18%, for a net gain in ¥ since July of 50%+.
Factor in the currency loss and the return in US$ is 20.2%. That’s almost precisely what the S&P 500 has done over the same time period. It’s well below the 35%+ gain in US$ that European stocks have posted.
2. To my eye, the daily fluctuations in the Japanese stock market over the past ten months have been uncharacteristically wide. This suggests to me that the main actors in the market have been foreigners. Not just any foreigners, either. I suspect the current market bulls are top-down investors driven by general macro concepts–and without much knowledge or experience of the Japanese economy or its securities markets. I don’t detect any great desire for Japanese professionals to participate.
I’m not sure what this means, if I’m correct. My experience is that Japanese institutions don’t often cover themselves with glory in their domestic stock market. On the other hand, they have the inside track in assessing what is/or is not possible politically.
In short, I think there’s much less positive about Abenomics than meets the eye.