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Is Abe's strong medicine a panacea to sustainable growth?

Popularity 2Viewed 1638 times 2014-11-5 09:25 |Personal category:reading note|System category:Economy| companies, corporate, medicine, problem, through

Bank of Japan's stunning injection of stimulus results a knee-jerk through the world market but is it a panacea to sustainable growth?

Japan's big problem, since the 1990's crisis, has been deflation. Falling prices dissuade people from spending and companies from expanding, leaving pools of yen stagnating in corporate bank accounts.
 


The BoJ's stimulus helps by increasing the money supply, which will raise the question of public debt. Although the sale tax hike can allieviate some pressure, it will also hit the growth hard.

FT reports
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After Japan's central bank injected confidence into the nation's markets by ramping up its aggressive monetary stimulus, attention has returned to Prime Minister Shinzo Abe, with analysts questioning what he is doing to revive the economy.

Credit ratings agency Fitch Ratings, referring to the campaign Mr Abe launched in late 2012 that promised strong reforms along with the monetary pump priming that followed his de facto hostile takeover of central banking, writes:

The success of the "Abenomics" reform policies in generating stronger and more sustainable rates of growth, remains uncertain... domestic demand and inflationary pressures remain weak.

Japan's big problem, since the 1990's crisis, has been deflation. Falling prices dissuade people from spending and companies from expanding, leaving pools of yen stagnating in corporate bank accounts.

The BoJ's stimulus helps by increasing the money supply. Some argue sustained inflation can revive Japan by increasing investment and prompting companies to raise wages.

But Japan has other problems. Companies lack the "animal spirits" to compete with South Korean or Chinese rivals, as John Plender writes here. Consumers are not buoyed by the BoJ's actions either. The index of Japanese household confidence has been below 50, which shows pessimism, since 1989.

Then there is Japan's enormous public debt, which Fitch says is 240 per cent of GDP. Abe's government raised the sales tax in April to shrink the debt. But this sent the economy into a tailspin.

A second sales tax rise is being mooted for next October. It could hit growth hard. At this point, unless the BoJ increases its massive stimulus again, investors will really look for meaningful reforms. Fitch writes:

It is unclear as yet whether the government will go ahead with the tax rise, but the deliberations leading up to the decision will yield important information on government's confidence in its ability to deliver its combined objectives of stronger growth and fiscal stabilisation.

(Opinions of the writer in this blog don't represent those of China Daily.)


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    Well, now that it is all over, as a yes voter, it was sad to see us lose, however, for politics in general it was a win, what a massive turnout, on top of that, there are moves to decentralise both English and Scottish governments now. Even though Scotland is not independent, such moves highlight the problems of the country, they bring such issues to the eyes if the people and the politicians.

    Mr Alex Salmond has been my favourite politician of all time, I think he has done a fantastic job. One of the first politicians who does what he says on the tin. I hope he can move past this in lead Scotland on to further reforms to strengthen our position within the union.I hope he does not lose moral after such a defeat and continues to work for Scotland now as a member of the union. There is no point being bitter, this is democracy and this is what the people chose so I might as well get on board even if I disagree.

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