Japan is the third-largest economy in the world, but like many other developed nations, it has not avoided financial crises in recent years. The biggest problems that have plagued the Japanese economy in recent years are deflation and a trade deficit. Both of these issues are big trouble for the economy, as it is very easy to get stuck in the cycle, according to The UK Independent. When a state faces deflation, businesses quit investing and consumers quit spending. As a result, prices stay low and wages don't increase. Hence, it is very easy for countries like Japan to get stuck in this cycle for years.
Recently, however, the Japanese government is implementing new measures to get Japan out of this state of deflation and trade deficit. In this plan known as 'Abenomics', the government is planning on expanding the money supply from 60 trillion Yen to 70 trillion Yen. One way that the government plans on doing this is by buying more of the country's own debt through government bonds. This method would be implemented within two years, which would shock the economy. According to The New York Times, the Japanese government also plans on producing an annual inflation rate of two percent.
These large measures have already caused a large trade deficit in recent months. Since November, the Japanese Yen has fallen twenty percent against the U.S. dollar, according to A BBC News article. As a result, imports have risen, but exports out of Japan have taken a hit. Since this is what Japan has been known for over the past several decades, this spells trouble.
There is great debate amongst economists and politicians as to the success of the "Abenomics" plan. When Prime Minister Shinzo Abe first came into office in December, Japanese stocks rose due to the anticipation of a fixed economy. Breaking the cycle of deflation is a keystone point of Abe's term as Prime Minister. However, some are starting to doubt if the Japanese government will really take the necessary drastic measures to get the economy back on track.
While the "Abenomics" plan would help the Japanese economy, the short-term effects would be very drastic, which is what scares many people. The new Bank of Japan governor, Mr. Kuroda, does not believe the side effects of this plan will cause a lot of damage. However, only time will tell. What is really important is that the new Japanese government keeps its promise to take drastic measures to get out of its economic slump. With the amount of time that the Japanese government has been in this debilitating state, drastic steps need to be taken.
If the Yen is depreciating, yet imports are still increasing, then something is seriously wrong. Devaluation is intended to bring about an increase of exports and a decrease in imports so as to reduce trade deficits and improve domestic employment. Somebody better move to fix the situation preeetttyyyy quickly
ReplyDeleteOther countries economies have been directly affected by Japan's new Abenomic policies. South Korea specifically has be impacted the most and reports from the Economist noted this past Tuesday that there has been a third consecutive monthly fall in industrial output. In March, production in South Korean mining, manufacturing, gas and electricity fell 2.6% from February. Vehicle production fell 9.8% as export customers went for Japanese brands, made cheaper as the yen weakens. The weaker yen makes Japanese exports more affordable, while South Korea’s own exporters are struggling to stay in demand.
ReplyDeleteI agree with Ben that something is seriously wrong if the Japanese consumers keep importing despite the devaluation in their currency. As Ben said it is intended to bring an increase of exports as well as domestic consumers purchasing from home rather than abroad. If this hasn't been working than I suggest they come to a better consensus on the steps to decrease the amount of imports or at least curb its growth.
ReplyDeleteVery strange case with Japan because even though the Yen has depreciated by more than 20%, its equity market is up 55%. The response may be to the transmission mechanism for the Japanese government's policies as the stock market benefits domestic investors, making them more likely to spend more. This should also help revive corporate "animal spirits," which would lead to higher investment in new plants and equipment. However, Japan's ageing population mutes both these potential impacts. The risks for Japan are significantly higher as a result.
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