“Abenomics” to Backfire in Japan?
CEIC Macro Watch: Shortly after returning to office in December 2012, Japanese Prime Minister Shinzo Abe proposed a three-pronged approach towards economic recovery, namely quantitative and qualitative monetary policy easing by the Bank of Japan, expansionary fiscal policy, and structural reforms to national industries. While more time is needed to assess the effectiveness of Abe’s plan, the additional government spending has raised concerns about Japan’s fiscal position given its excessively high debt-to-GDP ratio, currently at 240%. Note that the recent upsurge of Japanese government bond yields could become a vicious cycle. The higher interest payments on Japanese borrowing will worsen the nation’s fiscal balance, forcing the government to issue more bonds with an even higher yield to compensate for the increased risk of default. Despite its best intentions, Abe’s plan highlights the delicate balance between indebtedness and growth considerations. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. By Gary Ng in Hong Kong - CEIC Analyst Back to Blog