Abenomics: What's Left in the Quiver?

Abenomics: What's Left in the Quiver?

September 2014

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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, structural reform.

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. 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.

Japan’s predicament is rare. Few countries in economic history have suffered anything like its prolonged stagnation in nominal GDP. It follows that few economies have ever broken free from such a spell.

Miyuki Kashima, Head of the Japanese Equity Investment Division, BNY Mellon Asset Management Japan Limited

In a new white paper, Abenomics: What's Left in the Quiver?, 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

To learn more, read Abenomics: What's Left in the Quiver?