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Abenomics is with us for a moment yet. Shinzo Abe, Prime Minister of Japan, is expected to remain in office until 2021, after winning this week an internal struggle against the party leadership. His victory, combined with the reappointment of Haruhiko Kuroda earlier this year as governor of Japan's central bank, means that the radical economic policies that these two countries have pursued over the past five years should be halted.
At present, Abenomics' benefits, driven by the monumental monetary easing of the Bank of Japan, outweigh the negatives. The Japanese economy posted good growth of 0.7% in the second quarter. In total, nominal GDP has increased by 11% since the end of the first quarter of 2013, a much better result than in the previous two decades of stagnation in Japan.
Prime Minister Shinzo Abe, right, with former Defense Minister Shigeru Ishiba, after winning his party's elections. Abe is expected to retain the Prime Minister's seat until 2018.
Photo:
Rodrigo Reyes Marin / Zuma Press
The Nikkei is at levels never seen since the early 90s, thanks to the improved results of the company. The return on equity for MSCI Japan went from 4.4% in 2012 to 9.8%, according to Morgan Stanley. And the government has made progress on some of Japan's long-term problems, such as the decline of the population: the number of foreign residents has increased by almost a third over the last five years.
Prices remain troubling in this image of success. At 0.9% in August, underlying inflation increases at least slightly. But his stubborn refusal to meet the Bank of Japan's 2% target is likely to be behind a recent change in speech. Mr Abe now describes this previously central goal as one of the central bank's objectives, namely a relaxation of language which suggests that policy makers have accepted that this struggle will have years to run.
In turn, this means that the Bank of Japan will maintain monetary policy for a while longer. This has already led to massive distortions of the market. The central bank now holds just under 50% of the Japanese government bond market, according to Japan Macro Advisers; and through its ownership of exchange-traded funds, it also holds large shares in many Japanese companies.
Concerns about the rise of so-called state capitalism on a global scale tend to focus on China, but such numbers show that government dominance of the markets has become shocking in Japan as well. Mr. Abe spoke of trying to "normalize" politics in his last years in office. The reality is that the return of Abenomics will probably be the work of generations.
Write to Andrew Peaple at [email protected]
