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Honest Abe
Is Abenomics Working?

Prime Minister Shinzo Abe of Japan has focused his national revival agenda on two main things: defense and the economy. There can be little doubt that he is moving the country away from its pacifist past and toward a better organized defense leadership and stronger military. The impact of “Abenomics,” his economic strategy, is less clear: many analysts and investors have been disappointed; others have celebrated renewed growth or suggested the reforms will make a big impact in the future.

Government data released today suggest at least some of Abe’s economic reforms are having a positive effect, the FT reports.

Orders of new machinery by businesses, considered a leading indicator of overall capital investment, surged to a five-year high in November, rising 9.3 per cent to Y882.6bn. The year-on-year increase, which handily beat analysts’ expectations, was the second in two months and the fifth biggest on record.

Business investment has been a missing element in Prime Minister Shinzo Abe’s year-old effort to stimulate the Japanese economy. Mr Abe has ramped up government spending while the Bank of Japan has massively loosened monetary policy, but private companies – possibly concerned that the state-driven surge in demand will be temporary – have been cautious about expanding their production capacity….

The machinery orders report excludes the volatile shipping and electric power sectors, but it is still prone to sizeable month-to-month fluctuations. Even so, Marcel Thieliant, an analyst at Capital Economics, said Thursday’s data nonetheless “point to a renewed recovery in business investment”.

This is a good sign that Abenomics is helping to boost the Japanese economy out of years of lethargy. And the economy is arguably more important (and a more popular issue in Japan) for Abe’s national revival campaign than rebuilding the Defense Forces. If Abenomics works, big changes are coming to Asia.

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  • Andrew Allison

    As we observe here at home, the economic impact of ramping up government spending depends on how the money is being spent, i.e., to pay evermore government employees to produce evermore stifling regulation, or to stimulate economic growth by buying goods and services from private industry.

    • michaelj68

      Not sure if Abe is different but under the previous administrations from anecdotal evidence a lot of stimulus money was pumped into infrastructure. One reason is the construction industry are big supporters of the LDP. Not sure if the projects are useful or more white elephants, for example, one of the longest suspension bridges in the world, Akashi Kaikyō Bridge, and an airport built on artificial island, Kansai Airport.

  • Jacksonian_Libertarian

    I think that until we see some real inflation in Japan, that we have to assume that the destructive deflation is still in place, and that Abenomics is a failure. I applaud the Japanese central bank’s looser monetary policy, but as long as the central bank has massive foreign treasury holdings it will have a hard time inflating its currency. It’s the Debt (both Public and Private) to GDP ratio that is important to a nation’s economy. When Debt reaches a certain point, deflation sets in and the economy’s ability to dig itself out of Debt becomes steadily harder as wages stagnate and businesses go bankrupt. In such a position only a “shock and awe” program of paying off most or all of the Government debt by the central bank, can get inflation back to reducing private debt and making it easier to pay off.

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