The American Interest
Analysis by Walter Russell Mead & Staff
Are Japan’s Lost Decades About To End?

With parliamentary elections in Japan less than a month away and with aggressive nationalist Shinzo Abe likely to become the country’s next Prime Minister, it’s as good a time as any to have a look at Japan’s prospects for the future. Via Tyler Cowen comes an interesting profile in BusinessWeek of some bullish investors who see green shoots sprouting up amidst Japan’s seemingly perpetual economic winter. Some of it has to do with the ascendant PM’s monetary views:

Shinzo Abe, widely viewed as frontrunner to become the next prime minister, has been calling for unlimited monetary easing to incite inflation. The current governor of the (independent) Bank of Japan, who has been criticized for not being loose enough with his monetary purse strings, is expected to step down in April.

“(Shinzo) Abe’s focus is on two things—aggressive monetary and fiscal stimulus,” wrote CLSA Japan strategist Nicholas Smith in a report. “He made clear that the Bank of Japan will bend to his will or he will rewrite the BOJ Law to let him fire them.” The replacement governor, he added, will be selected for his “willingness to print money.”

“It has been a fool’s game to guess when the yen would finally weaken,” writes Hunt, “but economic healing in the West and eventually inflation and rising interest rates here could certainly be a catalyst, as could money printing in Japan.”

The optimism is not just about monetary policy, however, but also about the underlying value of some of the biggest Japanese corporations which according to these bulls are currently being underpriced by the markets. Yet all of this contrarian optimism in the article is held up against Japan’s grim demographic backdrop: “Last year, for the first time, sales of adult diapers in Japan exceeded those for babies.”

In any case, read the whole thing—lots of food for thought here as we await the results of the upcoming Japanese elections, and as we try to game out what the Asia-Pacific region will look like in the coming years.

Published on November 24, 2012 3:00 pm