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Abe Friend Is Strong Voice Of 'Reflation'
By Eleanor Warnock
805 words
21 Nov 2014
The Wall Street Journal Asia
AWSJ
English
Copyright © 2014 Dow Jones & Company, Inc. All Rights Reserved.
TOKYO -- Lawmaker Kozo Yamamoto, a tango enthusiast, is doing a dance of victory this week. His friend Shinzo Abe, the prime minister, has recommitted himself to the cause of doing whatever it takes to stamp out 15 years of deflation.

Mr. Yamamoto stands out in Japanese politics not just for his bright pink French-made ties, but also for the radical policies he advocates. Long before the ideas went mainstream, he called for "reflationist" policies such as having the central bank purchase huge quantities of assets and set an inflation target.

Now that is Japan's official policy. And the hand of Mr. Yamamoto appeared clear again Tuesday when Mr. Abe said he would delay a planned sales-tax increase. Sounding like Mr. Yamamoto a decade ago, the prime minister said that raising the tax "would jeopardize ending deflation."

"Abenomics has come back to its roots," said Mr. Yamamoto in an interview this week. "If you can't get out of deflation, you can't do anything else."

Mr. Yamamoto is one of a group of ex-central bankers, economists and lawmakers who made the reflationist fight into an election-winning platform that turned around Mr. Abe's political career.

Mr. Abe, 60 years old, and Mr. Yamamoto, 66, started to get to know each other better in 2011. The two Liberal Democrats weren't a natural pair. Mr. Abe, a career politician who inherited his father's seat in parliament, was more interested in defense and known for his hawkish views. Mr. Yamamoto came from the Ministry of Finance and was obsessed with central-bank policy.

Their styles differed too -- the stolid Mr. Abe, usually seen in a conservative suit or golf wear on the course, versus Mr. Yamamoto, a bon vivant who loves Italian food, fine pottery and his tango lessons.

What they shared was a feeling of being on the outs. Mr. Abe's first stint as prime minister ended disastrously, as health issues and scandals involving his cabinet forced him to step down after just a year, in 2007. Mr. Yamamoto had been grilling Bank of Japan officials for years in parliament, demanding monetary easing with little success.

Mr. Yamamoto and others in the reflationist camp went to work on Mr. Abe, persuading him that Japan needed a more aggressive central bank and weaker yen to turn around two decades of sluggish growth.

After the 2011 earthquake and tsunami, Mr. Yamamoto invited Mr. Abe to become chairman of the "Reconstruction Without Tax Increases" multiparty caucus, which argued that the funds to repair devastated regions should come from special bonds, not higher taxes. That caucus morphed into a study group led by Messrs. Abe and Yamamoto to discuss central-bank issues.

The next year, Mr. Abe swept to power on a deflation-fighting platform. He brought some of the study group's faces into the prime minister's office to push for a more aggressive central bank. By April 2013, reflationist Haruhiko Kuroda was in charge of the Bank of Japan and introduced his "bazooka" of funds to buy assets and flood the economy with cash to achieve the bank's 2% inflation target.

It was so successful that Mr. Yamamoto thought the economy could survive higher taxes -- normally anathema to the reflationists. Mr. Abe went ahead with an increase in the national sales tax to 8% in April from 5%. The economy tanked.

Mr. Yamamoto, who had favored a further increase to 10% next year, came to think it was a bad idea.

"The economy is picking up, but the pickup has been a bit slow, so it's best not to make any more headwinds," he said in an interview in September. "Exports haven't grown as much as I expected."

Once he switched gears, he used all his powers to press his new stance. It was time for another study group, this time to advocate a delay in raising taxes. He started one in October, calling it the "Group for Making Abenomics Successful," and within a month it got its way.

On Tuesday afternoon, Mr. Yamamoto strode triumphantly into the prime minister's residence dressed in a magenta tie, blue-and-white striped shirt and navy blazer. He spent 15 minutes with Mr. Abe and handed him his study group's proposals.

They included delaying the tax increase for a year and a half -- a plan Mr. Abe adopted hours later -- and a 3 trillion yen ($25.55 billion) stimulus package to support household spending.

"If we put the increase off until April 2017, the BOJ should have achieved its 2% target and real wages will be rising," Mr. Yamamoto said. "Until then, we can't endanger the exit from deflation."

http://www.djreprints.com/link/DJRFactiv...1120000055


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It should be a smart move politically, but it doesn't give more market confidence on Abenomics, which might make a diff between failure and success...

Low voter turnout could erode Japan PM Abe's call for fresh mandate

OKYO - Japanese voters, puzzled as to why Prime Minister Shinzo Abe is calling an election now and unimpressed by opposition alternatives, may shun a Dec. 14 election in record numbers.

That could help Abe's ruling coalition win the poll for parliament's lower house, but also erode any claim of a new, strong mandate for his economic revival plan.

A survey by the mass circulation Yomiuri daily published on Sunday showed 65 percent of voters were interested in the election, down 15 points from the 2012 poll that brought Abe back to power - with record low turnout of about 59 percent.
...
http://www.todayonline.com/world/low-vot...sh-mandate

Latest update from BOJ's key board member...

BOJ's Shirai defends latest easing, rules out incremental action

HIROSHIMA, Japan - A Bank of Japan board member who voted for last month's huge monetary expansion defended the move on Wednesday, saying that failing to act would have cast doubt on the bank's determination to hit its price goal and undermined its credibility.

Having deployed "the maximum scale of stimulus possible," the BOJ can now wait to see how much the move will support the economy and prices, Sayuri Shirai said, signaling that no further monetary easing was necessary in the near term.

"We don't ease policy each time (economic and price) growth undershoots our expectations," she told a news conference.
...
http://www.todayonline.com/business/bojs...tal-action

The Abe's QQEs has replaced the role of US's QEs in Asia...

Asia’s 13% carry return lures record Japan funds amid yield hunt

Japanese investors are buying Asian assets like never before as Prime Minister Shinzo Abe’s policies make the yen a lucrative means to fund bets on regional growth.

A net 1.82 trillion yen (US$15.4 billion) flowed into stocks and bonds in the rest of Asia in the first nine months of 2014, 76 percent more than the previous record in 2007, data from Japan’s Ministry of Finance show.

Borrowing in yen to invest in the 10 currencies that make up the Bloomberg-JPMorgan Asia Dollar Index returned an annualized 13 percent this year through yesterday.

That beat so-called carry trades funded in euros and dollars, which gained 11 percent and 0.3 percent, respectively.
...
http://www.theedgemarkets.com/sg/article...yield-hunt

Moody’s downgrades Japan’s credit rating
ELEANOR WARNOCK AND KOSAKU NARIOKA THE WALL STREET JOURNAL DECEMBER 02, 2014 9:06AM

MOODY’S Investors Service downgraded Japan’s credit rating yesterday, highlighting the challenges facing Prime Minister Shinzo Abe as he tries to stoke inflation and growth.

In explaining its move, Moody’s cited heightened uncertainty over Japan’s ability to cut its fiscal deficit after Mr Abe decided last month to delay an increase in the national sales tax scheduled to take effect next year.

The difficulty of the balancing act facing the Japanese government — fuelling growth while acting with fiscal responsibility — was reflected in the lower rating, Thomas Byrne, senior vice president of the sovereign risk group at Moody’s, told reporters in Tokyo after the announcement.

“The government has to in effect put one foot on the brake and another on the accelerator,” he said.

Moody’s acknowledged that delaying the tax increase “could have merit” if growth and tax revenues rise as a consequence, but said a second factor in its downgrade was uncertainty over whether the government’s growth policies would work in the medium term.

The tax decision also poses risks to Japan’s ability to continue to finance its debt in the future, Moody’s said in a statement.

It downgraded Japan’s debt by one notch to A1 from Aa3, the same rating it has assigned to Israel and the Czech Republic. It was the first downgrade of Japan by a major rating company since 2012, and the first by Moody’s since 2011.

Mr Abe announced his decision to postpone the tax increase shortly after the government reported that the economy had contracted again in the third quarter — the second straight quarterly contraction, a common definition of recession. Economists blame a similar tax rise in April for plummeting private consumption.

Data released Monday, however, led some to conclude that the contraction in the third quarter was less severe than the preliminary estimate of 1.6 per cent on an annualised basis. Capital spending by businesses — which accounts for around 14 per cent of Japan’s GDP — actually rose 3.1 per cent during the quarter, versus a previous estimate of a decline of 0.2 per cent, a Ministry of Finance survey showed.

After the survey was released, both Barclays and JPMorgan said they expected the government to revise the third-quarter GDP figure to roughly flat from the previous quarter.

In any case, some of Mr Abe’s closest aides had argued that another sales tax increase would endanger the government’s goal of ending 15 years of deflation.

Opponents of the decision said reining in the nation’s debt was crucial, and that the economy could weather another rise in the longer term. Japan is the developed world’s most indebted country, with debt more than two times the size of its gross domestic product.

The Japanese government has said it would try to achieve a primary government balance — meaning tax revenue matches spending, excluding interest payments on government debt — by 2020. Mr Abe said at a debate earlier Monday that his administration would work to develop a concrete plan to achieve that goal.

Minori Uchida, chief currency analyst at Bank of Tokyo-Mitsubishi UFJ, said the Moody’s downgrade may give Mr Abe a sense of urgency.

“Although Mr Abe has said he will come up with a specific fiscal reform plan by next summer, that’s too late,” he said.

Standard & Poor’s Ratings Services maintains its Japan rating at AA- with a negative outlook, said Takahira Ogawa, the firm’s Japan analyst.

Mr Ogawa also noted the challenges the Japanese government faces in balancing fiscal consolidation with economic growth.

“It’s hard to say which is more difficult,” he said, referring to the choice of delaying the sales tax increase or letting it proceed and watching economic conditions deteriorate.

The Ministry of Finance’s chief of public affairs, Hideki Takada, declined to comment.

“We do not comment on action taken by a private credit rating company,” he said.

Moody’s gives Japan’s rating a “stable” outlook, and Mr Byrne said the rating was likely to remain stable for the next 12 to 18 months.

Mr Byrne noted that despite concern about the sustainability of the nation’s debt, its banking sector was sound and most of the government bonds were held by domestic investors. In fact, yields hardly moved following the news. The yield on the 10-year benchmark government bond rose 0.5 basis point after the downgrade to 0.430 per cent.

The yen fell to a seven-year low of 119.15 against the U.S. dollar after Moody’s revealed the downgrade, but soon recovered to trade at a stronger level than before the announcement.

Market participants speculated that the Moody’s downgrade will make it more difficult for the Bank of Japan to expand its bond buying in the future, says Tsunemasa Tsukada, chief manager of forex and financial products trading at Mitsubishi UFJ Trust and Banking Corp’s London branch.

Mr Byrne said the BOJ’s easing program, including its expansion in late October, was credit positive but could have a negative effect on the economy if it lasted too long.

The central bank is buying trillions of yen worth of JGBs each month.

Let's see the outcome today. It shouldn't be any surprises...

PM Abe's ruling party eyes big win in Japan election, but turnout low

TOKYO - Prime Minister Shinzo Abe's party looks set for a huge win in an election on Sunday that will allow him to claim a fresh mandate for his reflationary policies to revive Japan's economy, although voter turnout appeared headed for a postwar record low.

Abe has cast the snap election as a referendum on his "Abenomics" strategy to end deflation and generate growth. Media exit polls, which have proved reliable in the past, will come out at 8 p.m. (6 a.m. EST).

The conservative leader called the vote after just two years in office in a gamble originally seen as potentially costing his party seats. But media projections have said his long-dominant Liberal Democratic Party (LDP) could win more than 300 seats in the 475-member lower house, possibly its biggest victory since its founding nearly six decades ago.

Together, the LDP and its junior partner are forecast to keep their two-thirds "super-majority".

Experts cautioned before the election that any mandate for Abe might be smaller than it first appears since disaffected voters who are increasingly dubious of Abenomics but wary of the opposition could stay home in large numbers.
http://www.todayonline.com/world/pm-abes...japan-vote

Abenomics will continue...

Abe's coalition secures big Japan election win with record low turnout

By Reuters / Reuters | December 15, 2014 : 8:25 AM MYT
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TOKYO (Dec 15): Japanese Prime Minister Shinzo Abe's coalition cruised to a big election win on Sunday, ensuring he will stick to reflationary economic policies and a muscular security stance, but record low turnout pointed to broad dissatisfaction with his performance.

NHK public TV said Abe's Liberal Democratic Party and junior partner the Komeito party were assured more than the 317 seats in the 475-member lower house required to maintain a two-thirds "super-majority" that smoothes parliamentary business.

But the LDP was set to fall slightly short of the 295 it held before the poll, NHK figures showed.

"I believe the public approved of two years of our 'Abenomics' policies," Abe said in a televised interview. "But that doesn't mean we can be complacent."

Many voters, doubtful of both the premier's "Abenomics" strategy to end deflation and generate growth and the opposition's ability to do any better, stayed at home.

Final turnout will be a record low of 52.4 percent, media forecast, below 59.3 percent in a 2012 poll that returned Abe to power for a rare second term on pledges to reboot an economy plagued by deflation and an aging, shrinking population.
...
http://www.theedgemarkets.com/sg/article...ow-turnout

The success of Abenomics, depends on a fair share of benefits between corporations and workers. How a free market leader to "ask" business leaders to raise wages? IIRC, PM Abe asked before...

Japan PM Abe: to ask companies to raise wages next year

TOKYO - Japanese Prime Minister Shinzo Abe said on Monday he will ask business leaders to raise wages next year at a meeting on Tuesday.
...
http://www.todayonline.com/business/japa...-next-year

I wonder where did the active money go, after exited from Russia in 2014? I guess a smaller part of it has gone into China market via HK direct-link, and the rest has been waiting at the side-line?

The 94% plunge that shows Abenomics is losing global investors

TOKYO (Dec 29): Foreign investors have had just about enough of Abenomics.

After pumping record amounts of cash into Japanese shares last year, they’ve hardly added to holdings in 2014.

Inflows are down 94 percent this year to 898 billion yen (US$7.5 billion), on pace for the smallest annual amount since the 2008 global financial crisis.

The month of April 2013 alone registered almost three times as much foreign investment in the stock market as all of 2014.

These figures provide the clearest look at how global investors have become disillusioned with Prime Minister Shinzo Abe after he pushed through a tax increase in April that sent Japan into recession.
...
http://www.theedgemarkets.com/sg/article...-investors

Some interesting predictions for Japan in 2015:
http://www.japaninc.com/tt787_prediction...5-in-Japan