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Global Credit Research - 17 Jun 2014
New York, June 17, 2014 -- Moody's Investors Service says that the partial progress made to
date with the implementation of Abenomics -- a set of policies aimed
at lifting Japan's economy out of almost two decades of subpar growth
-- could further dampen the country's long-term prospects
and exacerbate its long-term fiscal challenges.
Specifically, while the potential gains from structural reform,
one of the "three arrows" of Abenomics, are significant,
the uncertain and staggered timeframe for implementation of these structural
reforms exposes the strategy to significant implementation risks,
says Lúcio Vinhas de Souza, Moody's Managing Director
and Sovereign Chief Economist in the report..
Moody's views were contained in its just-released report
entitled "Japan's Abenomics: Answers to Frequently Asked
Questions About Progress 1.5 Years On".
The Japanese government announced its multi-pronged set of policies
in January 2013 to address the persistent economic under performance evident
in Japan (Aa3 stable) compared to the advanced economies of the US (Aaa
stable), Germany (Aaa stable), the UK (Aa1 stable) and France
Named Abenomics after the then newly elected Japanese prime minister,
Shinzo Abe, the policies are a traditional mix of 1) monetary support
(albeit on an unusually large scale) and 2) fiscal support (though to
a limited degree given the binding fiscal constraints in Japan),
complemented by 3) a comprehensive set of structural policies that aim
to reduce structural rigidities in the Japanese economy. These
components are the "three arrows" of Abenomics.
The Japanese government has so far implemented the monetary component
of the strategy according to schedule.
However, as Moody's report points out, given the inherently
limited capacity of Japan to provide meaningful fiscal stimuli,
the onus for sustained growth has always rested on the structural reform
component, or the "growth strategy."
The stated targets of the structural reform strategy include lifting Japanese
growth to 2% p.a. while doubling foreign direct investment
inflows and Japanese agricultural exports.
The potential gains from structural reform are therefore significant,
given the many rigidities in the Japanese economy, which range from
low female labour force participation and dualist labour markets to protected,
non-competitive agricultural and services sectors.
However, the timeframe for implementation of these structural reforms,
most recently outlined in the Japanese government's action plan,
is uncertain and staggered, extending for up to seven years.
The extended timeframe exposes the strategy to significant implementation
Therefore, Moody's concludes that the ultimate success of
Abenomics remains an open question. Furthermore, the Moody's
report notes that a partial rather than full implementation of the Abenomics
package (i.e., just the monetary and fiscal expansions)
could further dampen Japan's long-term prospects and exacerbate
its long-term fiscal challenges.
Subscribers can access the report at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_171714
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Lúcio Vinhas de Souza
MD- Sovereign Chief Economist
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
MD - Sovereign Risk
Sovereign Risk Group
Moody's: Slow progress on Abenomics could dampen economic prospects
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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