- POSTED: 26 Dec 2013 23:17
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It has been a year since Shinzo Abe took the helm as Japan's sixth prime minister and launched Abenomics. How has the three-pronged strategy of monetary stimulus, fiscal stimulus, and structural reform fared so far?
SINGAPORE: It has been a year since Shinzo Abe took the helm as Japan's sixth prime minister.
When the prime minister was tasked with solving the country's economic malaise, he came up with his so-called Abenomics, a take-no-prisoners economic recipe of fiscal and monetary stimulus.
It is a three-pronged strategy to lift Japan out of 15 years of deflation, create competitiveness and spur growth.
Abenomics was cheered by financial markets.
The benchmark Nikkei stock index has gained over 50 per cent this year, making it the best performing equities index globally.
Meanwhile, the yen has weakened 17 per cent against the US dollar, much to the delight of Japanese exporters.
On the macro front, things are also looking up. The government is inching closer to its goal of two per cent inflation in two years.
The consumer price index (CPI) is expected to exceed one per cent in the first half of 2014, although much of that is due to more expensive energy imports in light of the weaker yen.
In its monthly economic report this week, the Japanese government did not refer to deflation for the first time in four years.
Vishnu Varathan, senior economist at Mizuho Bank, said: "Abenomics perhaps will manage to get a mild distinction. Where Abenomics has scored very strongly is that they've gotten the BOJ's (Bank of Japan) buy-in initially. So the BOJ came and did one big move, impressed the markets. And we can see that from the yen, we can see that from the Nikkei. So they did very well on the monetary front."
By most accounts, Abe's fiscal and monetary arrows have hit their mark.
But it is the third arrow -- structural reform – that has got economists concerned.
Tony Nash, managing director of IHS Consulting Asia, said: "The third arrow is somewhat questionable -- that's the long-term structural reform in terms of corporate taxes, in terms of better use of labour resources, in terms of other things.
“The problem is there isn't a very well-developed view on Japanese industry going forward. The government hasn't quite figured that out, so they haven't really quite figured out what policies they need to put into place to meet that going forward.”
One of the biggest hurdles will be political clout.
With personal approval ratings coming under pressure, Abe could soon find himself in the hot seat, considering Japan's revolving door leadership that has churned out six prime ministers in five years.
Experts said the real test of Abe's mettle will be whether he can pull off deeply unpopular but needed policy reforms while he is still at the helm.