HONG KONG 12 September 2014 - Two years after Shinzo Abe returned to political prominence, a growing number of observers are losing faith in “Abenomics”. The prime minister’s strategy to revive Japan’s economy relies on three “arrows”: monetary stimulus, fiscal pragmatism and structural reform. Many investors view structural reform, the “third arrow”, as the most important and the most disappointing. In a new white paper, Miyuki Kashima and Simon Cox of BNY Mellon Investment Management take a different view.
Head of Japan Equity Kashima and Investment Strategist Cox argue that the first arrow of monetary stimulus will banish deflation and in doing so, help Japan’s economy to revive. They differ from the skeptics who say an end to deflation is either improbable or immaterial. In their view, an end to deflation is both probable and consequential. They do not doubt that Japan suffers from serious structural shortcomings — and they welcome Abe’s efforts to ameliorate them with the “third arrow”. But the lack of structural reform is not yet the binding constraint on Japan’s growth. They argue the third arrow is nothing without the first.
In the white paper, Kashima and Cox debunk skeptics’ key concerns and offer the following opinions:
Inflation is an objective (and NOT an obstacle)
Structural reform is SECONDARY to monetary stimulus (and NOT necessary to defeat deflation)
Japan’s massive public debt IS manageable (and NOT the acute danger many fear)
Investors have yet to fully recognize the potential of Japan’s homegrown recovery
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 “FY2012 Annual Report on Food, Agriculture and Rural Areas in Japan”, Ministry of Agriculture, Forestry and Fisheries
 “Japan’s GPIF to Cut Local Bonds to 40%, Survey Says” Bloomberg News, May 29th 2014.
 Financial Services Agency Weekly Review No.103 July 3rd 2014
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Christine Wood (FTI)
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