Abenomics is with us for a while yet. Shinzo Abe, Japan’s prime minister, is set to stay in office until 2021 after won an internal party leadership fight this week. His victory, along with Haruhiko Kuroda’s reappointment earlier this year as governor of Japan’s central bank, means there should be little interruption to the radical economic policies the two have spearheaded for the last five years.
Right now the positives of Abenomics, led by the Bank of Japan’s monumental monetary easing, are outweighing the negatives. Japan’s economy grew by a healthy 0.7% in the second quarter over the first: In all, nominal GDP is up 11% since the end of the first quarter of 2013, a much better record than during the prior two decades of Japanese stagnation.
Prime Minister Shinzo Abe, at right, with rival former Defense Minister Shigeru Ishiba, after winning his party’s leadership election. Mr. Abe is expected to retain the prime minister’s seat until 2018. Photo: Rodrigo Reyes Marin/Zuma Press
The Nikkei is meantime at levels not seen since the early 90s, driven by improved company earnings. The return on equity for MSCI Japan has risen to 9.8%, up from 4.4% in 2012, according to Morgan Stanley. And the government has made progress on some of Japan’s long-term issues, such as declining population: the number of foreign residents has surged by nearly a third in the last five years.
Prices remain the glaring hole in this picture of success. At 0.9% in August, core inflation is at least edging upward. But its stubborn refusal to hit the Bank of Japan’s 2% target probably lies behind a recent shift in rhetoric. Mr. Abe now describes that previously central aim as just one of the goal posts for the central bank, a softening of language that suggests policy makers have accepted that this fight still has years to run.
In turn, that means the BOJ will keep monetary policy loose for a while yet. This has already led to massive market distortions. The central bank now owns just less than 50% of Japan’s government-bond market, according to Japan Macro Advisers; and through its ownership of exchange-traded funds it also effectively owns large shareholdings in many Japanese companies.
Concerns about the rise of so-called state capitalism globally tend to focus on China, but such figures show government dominance of markets has become shockingly high in Japan too. Mr. Abe has talked of trying to ‘normalize’ policy during his final years in office. The reality is that rolling back Abenomics will likely be the work of generations.
Write to Andrew Peaple at [email protected]