The newly-elected government in Japan has come up with a blueprint for growth that might just be enough to put an end to decades of economic stagnation and falling prices and usher a new era of growth. And there are reasons to be hopeful
The Japanese economy has begun 2013 with a great deal of uncertainty. The economy is fragile and perhaps in recession, and a new prime minister, Shinzo Abe, is at the helm. Yet for the first time in 20 years critics across the globe are somewhat optimistic about the economy’s future. The reason is simple. Abe has some fresh ideas that might just be enough to lift the economy after two decades of underperformance.
Since his party’s (Liberal Democratic Party) comprehensive win in December 2012 election, Abe has been vocal on national security and on a radical economic plan (his election agenda too) that will form the focal point of his administration. And there are reasons to be hopeful. The incoming government has already provided a blueprint for growth that if successful could bring the Japanese economy back to life.
Abe’s new plan stands on three pillars. The first is redefining the Bank of Japan’s (BoJ) “price stability target” to consumer price index growth of 2% y-o-y over the medium to long term, from the previous 1%. The second measure is that the current quantitative easing (QE) programme, which is set to expire on December 31, 2013, would be extended indefinitely, mirroring the US Federal Reserve’s current programme, called QE infinity among other things. The third and the final component is a commitment by the BoJ to increase monthly asset purchases from the current rate of about 3 trillion yen per month to 13 trillion yen per month starting January 1, 2014. No doubt a sharp shift in policymaking under Abe was keenly anticipated, but these moves are not as dramatic as they appear from the top, particularly the third constituent.
The total value of BoJ’s assets under current QE programme stands at 40 trillion yen (as on December 31, 2012) and is perhaps the best single gauge of the extent of the BoJ’s QE programme. For uninitiated, three things determine the size of a central bank’s balance sheet – new asset purchases (or sales), depreciation or appreciation in the value of existing assets, and the rolling over of government bonds as they mature. The BoJ’s 3 trillion yen in monthly purchases between now and the end of 2013, alongside some short-dated government debt paper reaching maturity, gets the BoJ to its target of 76 trillion yen, the proposed final target of the current asset repurchase programme.
The Japanese economy has begun 2013 with a great deal of uncertainty. The economy is fragile and perhaps in recession, and a new prime minister, Shinzo Abe, is at the helm. Yet for the first time in 20 years critics across the globe are somewhat optimistic about the economy’s future. The reason is simple. Abe has some fresh ideas that might just be enough to lift the economy after two decades of underperformance.
Since his party’s (Liberal Democratic Party) comprehensive win in December 2012 election, Abe has been vocal on national security and on a radical economic plan (his election agenda too) that will form the focal point of his administration. And there are reasons to be hopeful. The incoming government has already provided a blueprint for growth that if successful could bring the Japanese economy back to life.
Abe’s new plan stands on three pillars. The first is redefining the Bank of Japan’s (BoJ) “price stability target” to consumer price index growth of 2% y-o-y over the medium to long term, from the previous 1%. The second measure is that the current quantitative easing (QE) programme, which is set to expire on December 31, 2013, would be extended indefinitely, mirroring the US Federal Reserve’s current programme, called QE infinity among other things. The third and the final component is a commitment by the BoJ to increase monthly asset purchases from the current rate of about 3 trillion yen per month to 13 trillion yen per month starting January 1, 2014. No doubt a sharp shift in policymaking under Abe was keenly anticipated, but these moves are not as dramatic as they appear from the top, particularly the third constituent.
The total value of BoJ’s assets under current QE programme stands at 40 trillion yen (as on December 31, 2012) and is perhaps the best single gauge of the extent of the BoJ’s QE programme. For uninitiated, three things determine the size of a central bank’s balance sheet – new asset purchases (or sales), depreciation or appreciation in the value of existing assets, and the rolling over of government bonds as they mature. The BoJ’s 3 trillion yen in monthly purchases between now and the end of 2013, alongside some short-dated government debt paper reaching maturity, gets the BoJ to its target of 76 trillion yen, the proposed final target of the current asset repurchase programme.
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