Japan’s fiscal policy agenda still has merit despite weakening exports and the implementation of negative interest, according to Nikko AM.
The Japanese fiscal agenda, intended to end deflation and revive the country’s economy, was implemented by Prime Minister Shinzo Abe in 2013 and is often referred to as ‘Abenomics’.
The introduction of negative interest rates coupled with weakening exports has, according to Nikko AM chief strategist Naoki Kamiyama, led to many questioning the effectiveness of Abenomics, but Mr Kamiyama notes that Abenomics policy has already had “major achievements in some areas”.
“Abenomics is having a positive impact on core inflation which remains closer to 1 per cent than the zero or sub-zero level it had been accustomed to for the better part of two decades,” he said.
Mr Kamiyama said the public should have faith in Abenomics, arguing that “a stronger US dollar and normalisation of the global economy post-GFC” are likely to be trends for the next few years, and both bode well for Abenomics and Japanese inflation.
“This is not the time to give up on Abenomics. In fact, the current market environment only reinforces the case for it,” he said.
Nikko AM anticipates that growing US consumption and Bank of Japan rate cuts will help the Japanese economy avoid deflation.
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