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Abe Shoots for the Stars


The gutsiest, highest risk economic drive for growth in the world these days is coming out of Japan. After decades of stagnation, accompanied by deficit spending and Keynesian stimulus on an enormous scale, the world’s third largest economy is crashing its currency to stimulate exports and doing everything nationalist Prime Minister Shinzo Abe can think of to get the becalmed behemoth back on a growth track.

The Economist provides some great background on what the world calls “Abenomics” but workers in Tokyo’s red light district have taken to calling “awanomics”—awa means bubble or lather in Japanese. Abenomics has, the Economist reports, “in the short term, worked awfully well, at least for investors…. Yet if the Bank of Japan succeeds in ending deflation, a fresh problem could arise…. [I]nvestors, uncertain as to how far such success may go, [could demand] a higher risk premium for holding government bonds. The bond market has recently become a lot more volatile.”

Indeed, the Japanese bond market was walloped today. The WSJ reports: “Japan’s markets witnessed their first serious jolt of 2013 on Thursday, with a 7.3% plunge in stocks and volatility in the bond market reminding investors that the era of “Abenomics” under Prime Minister Shinzo Abe may not be all smooth sailing.”

Some experts think Abe is on the right track, but many others disagree. A huge rally in the stock market gave ammunition to the bulls, but last night that optimism tanked. Is this temporary volatility or a sign that the tough times aren’t over? It’s too soon to tell, but the world’s policy makers and investors are going to be watching what may well be the biggest economic story in the world for the next few months.

Stay tuned.

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  • Felipe Pait

    Paul Krugman preempted this story by noting that, if the fall in the Japanese market had been prompted by lack of confidence in Abenomics, then the yen would have lost value; instead, it appreciated.

    You had a whole day to realize that the WSJ goofed; they did not realize that the yield in Japanese bonds is still close to zero. Additionally, you confused stocks and bonds.

    Action point: do your homework, or stay in your side of the pool.

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