After four years of lofty promises and limited returns, could Abenomics finally be working? Japan’s latest economic data certainly gives reason to think so. FT:
Japan has recorded its longest run of sustained growth in more than a decade as stimulative policy and a healthier global economy lead to a period of robust progress.
Growth for the first quarter of 2017 came in at an annualised 2.2 per cent, according to the Cabinet Office, marking five quarters of continuous expansion in gross domestic product.
The figure beat the consensus analyst forecast of 1.7 per cent and is far above Japan’s long-run growth potential of roughly 0.7 per cent. That suggests the economy is using up spare capacity and unemployment will keep on falling.
Some of Japan’s growth is being driven by factors beyond Prime Minister Abe’s control: since Trump’s election in November, for example, a weakening yen has helped make Japanese exports more competitive.
Regardless, the data is good news for Abe, who came to office promising that his cocktail of monetary easing, fiscal stimulus and structural reforms could reverse decades of stagnation and deflation. Tokyo is still struggling with inflation; prices and wages are rising slower than expected. Still, the real growth figures are trending in the right direction, and an uptick in Japan’s perennially low consumer spending is a promising vote of confidence in the economy.
Domestically, the rosy forecast could strengthen Abe’s mandate to pursue his economic agenda more aggressively. Recent signals from the Bank of Japan suggest that Abe’s easy monetary policies and ultra-low interest rates are here to stay, and the Prime Minister has lately turned his eyes to reforming Japan’s rigid labor laws. If Japan can sustain its positive growth and see prices and wages respond in kind, Abe’s political capital for pursuing such reforms will only increase—and he could redeem a policy that many have prematurely written off.