about abenomics

Managing national economic structures is complex and as difficult to understand as it is to explain. The AAAPodcast attempts to tackle the economic plan in Japan known as Abenomics. We explain what it is, why it’s happening, and what it means for foreigners. We also begin our Fall 2014 Anime Impressions!

Predicted by Mitsugi back in episode 117 of the podcast.

Background

• Early 1990s – Japan’s real estate and stock market bubble (real prices of goods are well below the actual market prices) burst
• Since then, companies have focused on cutting debt and moving manufacturing overseas
• Wages stagnated resulting in consumers reigning in spending
• 1990s – 2010 – No normal growth in the economy
• Prices of goods fell, creating deflation
• 2011 – the earthquake, tsunami, and Fukushima
• The Japanese population is aging and the birthrate has exceeded the death rate

Abenomics

• Prime Minister Shinzo Abe was re-elected as Japan’s prime Minister in December 2012, he last held the position from 2006-2007
• He wanted to revive the stagnant Japanese economy with “three arrows”
  • 1. Massive fiscal stimulus
    • 20.2 trillion yen ($210 billion) of which 10.3 trillion ($116 billion) would come in government spending with a focus on infrastructure.
  • 2. More aggressive monetary easing from the Bank of Japan
    • Doubled the inflation target to two percent.
    • Government aims to create 600,000 jobs in two years.
  • 3. Structural reforms to boost Japan’s competitiveness
    • Structural changes including industry liberalization, corporate tax cuts, increased workforce diversity.
• How will it help?
  • Abe hopes that by driving down exchange rates it’ll give exports a major boost
    • The yen has fallen 34% against the dollar since November 2012
    • Rebound in Japanese production predicted
    • Nikkei index is up almost 40% and consumer prices are rising
      • Abe hopes this will drive consumers to spend more
      • However, the Nikkei only rises when Japan’s own markets are closed, showing that a lot of the faith and drive comes from foreign investors
• Risks?
  • Hyperinflation
  • The possible collapse of the yen
  • The possibility that Abe’s plan may do too little to reverse the deflation
  • Japan’s debt
    • The national debt is at $10.46 trillion, more than twice it’s GDP
    • The largest debt in the industrialized world
  • Investors, could put a scare in the bond market by selling from a fear that their investments will use value in real terms
  • Real wages have fallen for 13 straight months as wage growth lags price raises
  • Failure to implement labor changes and create jobs could fail the plan long-term, resulting in a downward spiral

Successes?

• 1. Stimulus
  • Inflation (Inflation is simply a rise in the average price of goods and services in the economy. ) has increased.
  • Inflation has inched upwards, and extra spending nudged the inflation rate past 1.5 percent despite an April 2014 hike in the consumption tax
• Preliminary GDP data shoes a 6.8% contraction year on year in the second quarter of this year – the largest since the 2011 earthquake

• consumer spending fell by a record amount
• Total real (inflation-adjusted) decline of 5.9% from last July
• 3. Structural Reforms
  • The unemployment rate has reduced to 3.8%
  • The radio of job openings to applicants has exceeded parity
  • GDP deflator is close to zero
• Struggling to expand the workforce
  • Bringing in immigrants faces social/cultural barriers
  • Removing barriers – such as limited childcare services – to help bring women into the workforce
• Projecting a tax break for companies to attract large MNCs

National Sentiment

• Abe’s approval rating has dipped below 50%
  • Originally the Japanese were supportive of abenomics, however it is now at its lowest.
    • This is two fold – One is the seemingly faltering abenomics after April’s sale’s tax increase. The other reason is the self-defense resolution passed in early July.

What does this mean for foreigners?

• Traveling to Japan
  • Getting to Japan is becoming more expensive year over year – now is the time to do it.
    • International flight tickets are up 2.3% over last year
    • Prices are expected to continue to rise
      • Taxes on international flights are rising – currently, when you fly to Europe over half the cost is in taxes
  • We always said a 2 week in vacation can be done for about $2,500 dollars.  That was then.  Today you should be able to do it at least 20% cheaper than before.
• Working in Japan
  • Getting paid in JPY
    • Japanese companies will pay you in yen.
    • It’s typical in  Western countries to receive a 3% raise in pay every year to account for inflation.  I’m not aware of this practice occurring in Japanese english firms.
  • Getting paid in foreign currency
    • November 2012: Mitsugi salary 250,000 yen/month = $37,500 per year
    • October 2014: Mitsugi salary 250,000 yen/month = $28,000 per year
    • Brutal loss of purchasing power due to exchange rate risk
      • Rate expected to continue declining