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| Japan's new PM brings rising hopes that economy can be revived | Japan's new PM brings rising hopes that economy can be revived |
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| In his first major speech of the year, Japan's new prime minister, Shinzo Abe, called for a "rocket-like start towards economic recovery". Next month sees the start of the year of the snake, which is, he said "a symbol of business prosperity". | In his first major speech of the year, Japan's new prime minister, Shinzo Abe, called for a "rocket-like start towards economic recovery". Next month sees the start of the year of the snake, which is, he said "a symbol of business prosperity". |
| The stock and currency markets responded better than perhaps even Abe could have hoped. The Nikkei average has risen dramatically, while the yen is finally ceding ground to the US dollar, bringing relief to Japan's embattled exporters. On Friday, the dollar rose to its highest level against the yen for two-and-a-half years. | The stock and currency markets responded better than perhaps even Abe could have hoped. The Nikkei average has risen dramatically, while the yen is finally ceding ground to the US dollar, bringing relief to Japan's embattled exporters. On Friday, the dollar rose to its highest level against the yen for two-and-a-half years. |
| Voters in last month's general election were receptive to Abe's focus on growth in the world's third-largest economy, even if it meant setting aside measures to tackle public debt, now more than 230% of its GDP, according to the International Monetary Fund. | Voters in last month's general election were receptive to Abe's focus on growth in the world's third-largest economy, even if it meant setting aside measures to tackle public debt, now more than 230% of its GDP, according to the International Monetary Fund. |
| While "Abenomics" marks a departure from the previous government's priorities of debt reduction and tax increases to fund welfare spending, Abe's approach has a familiar ring. It marks a return to old-style spending on public works, a time-honoured Liberal Democratic party [LDP] policy pilloried in the past for funding the construction of cavernous community centres in rural villages and infamous "roads to nowhere". | While "Abenomics" marks a departure from the previous government's priorities of debt reduction and tax increases to fund welfare spending, Abe's approach has a familiar ring. It marks a return to old-style spending on public works, a time-honoured Liberal Democratic party [LDP] policy pilloried in the past for funding the construction of cavernous community centres in rural villages and infamous "roads to nowhere". |
| Abe has promised to put an end to such waste, and instead wants to focus investment on three things: the region ravaged by the March 2011 tsunami; making repairs to ageing infrastructure, highlighted by last month's fatal tunnel collapse near Tokyo; and quake-proofing schools and hospitals. | Abe has promised to put an end to such waste, and instead wants to focus investment on three things: the region ravaged by the March 2011 tsunami; making repairs to ageing infrastructure, highlighted by last month's fatal tunnel collapse near Tokyo; and quake-proofing schools and hospitals. |
| This month, his cabinet agreed on a stimulus package that includes ¥10.3 trillion (£70bn) in central government funds. The aim is to add about 2 percentage points to the country's real growth rate, and create more than 600,000 jobs. | This month, his cabinet agreed on a stimulus package that includes ¥10.3 trillion (£70bn) in central government funds. The aim is to add about 2 percentage points to the country's real growth rate, and create more than 600,000 jobs. |
| Business leaders welcomed the stimulus package. "It was well-timed, as wide-ranging measures were taken with a sense of speed," said Hiromasa Yonekura, chairman of the Japanese Business Federation. | Business leaders welcomed the stimulus package. "It was well-timed, as wide-ranging measures were taken with a sense of speed," said Hiromasa Yonekura, chairman of the Japanese Business Federation. |
| Abe has made it clear that he expects government action to be complemented by a more aggressive monetary policy on the part of the Bank of Japan, including raising the country's inflation target to 2% from 1%. The government and the central bank are expected to issue a joint statement early this week that will largely incorporate Abe's demands. He will use his power of appointment to ensure that the next Bank of Japan chief, who replaces the current governor, Masaaki Shirakawa, in April, shares his views on easing. | Abe has made it clear that he expects government action to be complemented by a more aggressive monetary policy on the part of the Bank of Japan, including raising the country's inflation target to 2% from 1%. The government and the central bank are expected to issue a joint statement early this week that will largely incorporate Abe's demands. He will use his power of appointment to ensure that the next Bank of Japan chief, who replaces the current governor, Masaaki Shirakawa, in April, shares his views on easing. |
| "We will choose someone who appreciates my basic policies to beat deflation," he said. | "We will choose someone who appreciates my basic policies to beat deflation," he said. |
| There is a real prospect that the stimulus package announced last week – the biggest Japan has approved since the Lehman Brothers shock – will have an immediate impact. | There is a real prospect that the stimulus package announced last week – the biggest Japan has approved since the Lehman Brothers shock – will have an immediate impact. |
| That could earn the LDP enough support to secure victory in key upper-house elections due in July, according to Koichi Nakano, a political science professor at Sophia University in Tokyo. | That could earn the LDP enough support to secure victory in key upper-house elections due in July, according to Koichi Nakano, a political science professor at Sophia University in Tokyo. |
| "It's striking how focused they have been on the economy – they've been remarkably on-message and promised not to be diverted by other issues," he says. "But it could turn out to be the same old story, with money going to familiar vested interests, particularly in the countryside. It's important to keep an eye on where the cash goes." | "It's striking how focused they have been on the economy – they've been remarkably on-message and promised not to be diverted by other issues," he says. "But it could turn out to be the same old story, with money going to familiar vested interests, particularly in the countryside. It's important to keep an eye on where the cash goes." |
| Robert Dujarric, director of the Institute of Contemporary Asian Studies at Temple University in Tokyo, believes Abe's plan to pull Japan out of two decades of stagnation and deflation "could work up to a point". | Robert Dujarric, director of the Institute of Contemporary Asian Studies at Temple University in Tokyo, believes Abe's plan to pull Japan out of two decades of stagnation and deflation "could work up to a point". |
| "What's missing in his proposals are microeconomic reforms: to deal with structural problems that would make it easier for women to contribute to the economy and for families to have children," he says. | "What's missing in his proposals are microeconomic reforms: to deal with structural problems that would make it easier for women to contribute to the economy and for families to have children," he says. |
| "Abe comes from a wing of the LDP that really hasn't paid any attention to these issues. On top of that, his social conservatism is obvious: he has little interest in modernising policies towards women and families." | "Abe comes from a wing of the LDP that really hasn't paid any attention to these issues. On top of that, his social conservatism is obvious: he has little interest in modernising policies towards women and families." |
| Polls show that consumers are sceptical about Abe's ability to turn the economy around. A weaker yen will help exporters, but the price of imports on which Japan is heavily reliant, especially in food and energy, will hit households if incomes fail to keep up with inflation. While doubts remain over job security and wages continue to stagnate – they have failed to rise for nine of the past 12 months – consumers are unlikely to embark on a spending spree. | Polls show that consumers are sceptical about Abe's ability to turn the economy around. A weaker yen will help exporters, but the price of imports on which Japan is heavily reliant, especially in food and energy, will hit households if incomes fail to keep up with inflation. While doubts remain over job security and wages continue to stagnate – they have failed to rise for nine of the past 12 months – consumers are unlikely to embark on a spending spree. |
| "It will take a lot to unleash consumers," Dujarric says. "After 20 or more years of stagnation or low growth, it will take a lot to convince them that things have changed." | "It will take a lot to unleash consumers," Dujarric says. "After 20 or more years of stagnation or low growth, it will take a lot to convince them that things have changed." |
| Koichi Hamada, Abe's special economics adviser, concedes the government and central bank are about to perform a tricky balancing act. "Economics is like medicine," he says. "We don't know how much medicine is needed to cure a high fever, so you have to try, and then observe. But you have to do as much as you can to beat deflation." | Koichi Hamada, Abe's special economics adviser, concedes the government and central bank are about to perform a tricky balancing act. "Economics is like medicine," he says. "We don't know how much medicine is needed to cure a high fever, so you have to try, and then observe. But you have to do as much as you can to beat deflation." |
| Even before taking office in December, Abe put pressure on the Bank of Japan to double its inflation target, warning that it could expect a political battle of wills unless it signed up to his vision of monetary easing. | Even before taking office in December, Abe put pressure on the Bank of Japan to double its inflation target, warning that it could expect a political battle of wills unless it signed up to his vision of monetary easing. |
| Other advanced economies will be closely following the Abe administration's fortunes. Like Japan, they are struggling with mounting public debt, and face rising welfare costs because of their ageing populations. In many ways, Japan is a test case for the rest of the developed world. In this, the year of the snake, Japan can only hope that it quickly sheds the skin of recession and stagnation. | Other advanced economies will be closely following the Abe administration's fortunes. Like Japan, they are struggling with mounting public debt, and face rising welfare costs because of their ageing populations. In many ways, Japan is a test case for the rest of the developed world. In this, the year of the snake, Japan can only hope that it quickly sheds the skin of recession and stagnation. |
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