Transcript Japanese New Economic Policy - Abenomics

Japanese Economic Outlook
“Abenomics” as a new economic policy in Japan
August 31, 2015
Fumio Hoshi
Advisor
Sumitomo Mitsui Banking Corporation
Copyright © 2015 Sumitomo Mitsui Banking Corporation. All Rights Reserved.
Table of Contents
 Japanese New Economic Policy – Abenomics
 3 arrows
 Abenomics so far
 Opportunities and challenges



This material is intended for information and discussion purposes only and it is not a solicitation to participate in any particular transaction.
Although the information is obtained from sources considered reliable by Sumitomo Mitsui Banking Corporation (hereinafter “SMBC”), SMBC
makes no representation or warranty as to, and does not take any responsibility for, the accuracy or completeness of the information
contained or opinion expressed herein. The information contained in this material may be amended from time to time without prior notice.
This document should not be quoted, copied, forwarded or distributed to any other party by using electronic or mechanical methods without
our consent.
Copyright © 2015 Sumitomo Mitsui Banking Corporation. All Rights Reserved.
1
Japanese New Economic Policy - Abenomics
 Background
• Japan lost 2 decades after the bubble economy collapsed –
recession, strong Japanese Yen, stagnant stock prices, etc.
4%
45,000.00
40,000.00
3%
35,000.00
Peak of the
bubble
economy”
2%
30,000.00
25,000.00
Inflation rate
(Left, % change)
20,000.00
Stock price
(Right, Nikkei 225, JPY)
1%
0%
15,000.00
10,000.00
-1%
5,000.00
-2%
0.00
1985
1990
1995
2000
2005
2010
Data from 1985 to 2012
Source: IMF, Nikkei
Key challenge – “Pulling out of continues deflation”
Copyright © 2015 Sumitomo Mitsui Banking Corporation. All Rights Reserved.
2
Japanese New Economic Policy - Abenomics
 New economic policy
• Early 2013, Abe Cabinet launched a new economic policy –
Abenomics
• Ultimate objective - “Change mindset of Japanese people
from deflation to inflation - 2% inflation target”
 Abenomics - consists of “3 arrows”
I.
Unlimited monetary easing through the central bank (Bank
of Japan - BOJ)
II. Massive fiscal stimulus through public spending
III. Structural reform to improve economic growth potential
Copyright © 2015 Sumitomo Mitsui Banking Corporation. All Rights Reserved.
3
3 arrows / 1st arrow - monetary easing
 Measures
• 2% inflation target
• Unlimited money supply / asset purchase through BOJ
e.g. Japanese Gov Bond purchase: Apr 2013 +JPY50trillion (USD500bil),
Oct 2014 +JPY30trillion (USD300bil)
• Negative interest rate
 Objectives
•
•
•
•
Reduce (negative) interest rates
Weaken Japanese Yen vs USD
Increase exports
Lift up stock prices
Copyright © 2015 Sumitomo Mitsui Banking Corporation. All Rights Reserved.
4
3 arrows / 2nd arrow – public spending
 Measures
• Massive government spending
(As of Jan 2013, JPY10trillion (USD100bil) extra budget
approved)
 Objectives
• Contribute GDP growth – impact estimated 2%
• 600 thousand job creation expected
• Stimulate private sector investment
Copyright © 2015 Sumitomo Mitsui Banking Corporation. All Rights Reserved.
5
3 arrows / 3rd arrow – structural reform
 Measures
• Deregulation / regulatory reform
(e.g. medical regulation easing, labor market reform,
adopting TPP - Trans-Pacific Strategic Economic Partnership
Agreement)
• Corporate tax reduction
 Objectives
•
•
•
•
Facilitate private sector investment
Promote Japanese businesses globally
Improve Japan's human resources potential
Create new business opportunities – agriculture, energy, etc.
Copyright © 2015 Sumitomo Mitsui Banking Corporation. All Rights Reserved.
6
Abenomics so far
 Economic recovery
130
510
120
500
Abenomics
launched
490
110
480
Gross Nominal GDP
(JPT trillion)
470
Currency rate
(JPY vs USD)
100
90
460
80
450
70
440
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Data from 2011 to 2015
Source: Japanese Gov, BOJ
25,000
20,000
Abenomics
launched
15,000
10,000
Stock price
(Nikkei 225, JPY)
5,000
Data from 2011 to 2015
Source: Nikkei
Copyright © 2015 Sumitomo Mitsui Banking Corporation. All Rights Reserved.
7
Opportunities and challenges
 Opportunities
• Change mindset from deflation to sustainable growth
• De-regulation against “bed rock regulations” – agriculture,
medical, health care, labor market, etc.
• Real estate investment increase – office vacancy rate low,
high-end residential condominium
• Investment opportunities toward Tokyo Olympic in 2020
• Increase number of tourists to Japan
• Wage increase, job applicant ratio improve
• Employment opportunities for women
Copyright © 2015 Sumitomo Mitsui Banking Corporation. All Rights Reserved.
8
Opportunities and challenges
 Challenges
• Fiscal reconstruction – huge negative primary balance,
government debt over 200% of GDP, etc.
• VAT hike in 2017, other tax reform necessary
• Post monetary easing
• Falling oil prices (negative to inflation)
• Demographic composition for labor market
Narrow path but may be achievable
Copyright © 2015 Sumitomo Mitsui Banking Corporation. All Rights Reserved.
9