Several countries will press Japan to explain its growth stimulus programme at the G20 summit in Russia as concerns remain over the virtues of the so-called Abenomics policy of its Prime Minister Shinzo Abe.
At least two delegations said ahead of the start of the Group of 20 meeting of world powers in Saint Petersburg that Abe must elaborate on his recipe to boost economic growth in Japan, which has countries worried about the country’s ballooning debt.
“The most important thing for the Japanese government is to explain ‘Abenomics’ and explain how we can contribute to the global economy through the recovery of the Japanese economy,” a source in the Japanese finance ministry said.
Abe’s policy rests on three “arrows” of generous monetary policy, budget spending stimulation and structural reforms, and is meant to keep the world’s third largest economy from sinking into deflation, a vicious cycle of falling prices and demand.
The Japanese central bank on Thursday gave a positive assessment of the country’s “recovering” economy, holding off further expanding the stimulus programme, which included a massive bond-buying scheme.
A German government source has already asked Abe for “explanations regarding the possible structural reforms” under consideration for completing monetary and budget reflation.
“We understand that other export oriented countries (like Germany) are hostile to the sharp depreciation of the yen as their competitiveness is threatened,” said Patrick Moonen, a strategist with ING Investment Management.
“But at the same time the goal of Abenomics is not to depreciate the yen but to increase inflation expectations. A weak yen is only a byproduct,” he said.
“We are not sure about the risks” of Abenomics, Moonen said. “One is hyperinflation, but that seems unlikely. Another risk is loss of confidence in the Japanese bond market.”
“Elections are over,” the German source said, pointing out the clear victory by Abe’s coalition in the election that renewed half of the parliament in July.
In other words, criticism of Abe’s policy that was put on hold during the campaign is already emerging.
“We will see to what extent we will criticise Japan’s policy,” the source said, adding that the G20 final communique will “mention the dangers and risks tied to certain policies,” particularly those having to do with “expansive monetary policy.”
The United States is also awaiting to hear on the plan from Abe, who will only have one day to explain it, having decided to leave the summit at the end of the first day to travel to Argentina and support Japan’s candidacy to host the 2020 Olympic Games.
“While we welcome efforts to escape deflation, it is critical to see continued adherence” by Japan to international commitments to “orienting policy to domestic objectives and not targeting exchange rates,” US Under-Secretary of Treasury Lael Brainard said ahead of the summit.
“We look forward to seeing Japan’s plans for structural reforms, which will be key to unlocking domestic demand,” Brainard added.
Abe is also doing a sales pitch of his plan to halve the public deficit in the mid-term. It would require containing the country’s debt, already the biggest of all developed countries at 245 percent of GDP in 2013, according to figures of the IMF, which regularly demands “credible” measures from Tokyo.
Japan set to defend 'Abenomics' at G20
