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‘Abenomics’ Is Turning Japan’s Economy Around

In December, Shinzo Abe became Japanese prime minister by a landslide based on his economic stimulus proposals. Japan’s economy has stagnated since the 1990s, with deflation and barely perceptible growth. The financial meltdown in 2008 added to the problems and Fukushima’s triple disaster in 2011 compounded them.

Abe promised a dramatic new strategy to boost the country’s economy. In January he announced a $103 billion stimulus package, and made Haruhiko Koda governor at the Bank of Japan. Koda agreed to double the country’s inflation target to 2% annually. The yen obligingly fell, cheering companies dependent on exports as their wares looked more like bargains on the world markets and sales rose.

The Japanese stock market supported Abe’s moves and amid the beginnings of “Abenomics” the Nikkei 225 stock index rose by 50%, with some of its top stocks gaining well over 100%. Other indices have risen as well, with the Topix Index gaining 61% since Abe hit the campaign trail in November and the Topix Securities and Commodity Futures Index soaring 172%.

Investment banks have been happy, too; stock sales have tripled so far this year compared to the same period in 2012, and corporate bond issues saw their best first quarter since 2009. Brokerage fees are up along with trading volumes.

But Koda wasn’t finished yet. In the first week of April, the BoJ governor announced a massive $1.4 trillion in stimulus, pushing markets even higher. Japan’s other banks had sought additional revenue in overseas expansions, particularly in Latin America. They have taken Koda’s latest move as a sign to intensify foreign expansion, and in Latin America they finance everything from infrastructure projects to M&A to small and medium-sized business loans for non-Japanese companies.

Abe’s bold actions have certainly enlivened markets, raising speculation that gains will be “different” this time. Other market increases over the last 20 years or so have ended in selloffs rather than lasting gains.

However, not everyone is enthused about Abenomics. One of the doubters is Standard & Poor’s, which, toward the end of April, said it saw a greater than one-third chance it would end up downgrading Japan’s sovereign ratings because of the uncertainty surrounding Abe’s gutsy strategies.

In its report, S&P said, “Japanese Prime Minister Shinzo Abe’s plan to lift Japan out of deflation and spur economic expansion—known as ‘Abenomics’—has three pillars: bold monetary easing, fiscal efforts to spur growth, and a strategy to induce private sector investment. Of the three engines that Mr. Abe foresees reinvigorating the nation’s economy, so far only one, monetary easing, has kicked into full gear. The others remain idle.”

But indications are that it will not be long until Abe releases the “third arrow,” as the Japanese refer to it, in his quiver of strategies—a push to drive new trade-friendly legislation that will cut regulations and increase corporate investment. One sign is a push by the Japanese casino lobby to win approval for legislation to permit casino gambling as a means of helping to grow the country’s economy. Plans are afoot to propose not just casinos, but “destination” resorts including casinos, entertainment, conventions, and tourism.

Japan is attractive as a gambling destination for its population, both prosperous and large, and its location: near both Shanghai and Beijing. Japanese are already big gamblers, despite the lack of legal casinos, wagering instead on pachinko.

Abe’s Liberal Democratic Party is considered business friendly, and Abe has already said he’s open to the idea of casino resorts in Japan, though he added that it needs more study. That said, according to broker CLSA, Japan’s gaming market could amount to at least $10 billion with approval of two large gambling destination resorts. That outpaces both Singapore, at $5.9 billion, and Las Vegas, at $6.2 billion in 2012.

Other nascent possibilities include scheduled end-of-April talks between Japan and Russia that have big goals: 20 memoranda of understanding (MOU) on various business deals, the launch of an investment fund, and negotiations over a territorial dispute over possession of four islands, known to the Japanese as the Northern Territories and to Russia as the Southern Kuriles, that has raged since WWII but may finally be laid to rest.

Abe and Russian President Vladimir Putin were to discuss those issues, as well as the possibility of Japan participating in building a pipeline between gas fields in eastern Siberia and a Gazprom gas hub built in Vladivostok; such participation could cut Japan’s cost for liquid natural gas, which soared after the Fukushima disaster took the country’s reactors offline.

In addition, Japan has won approval to join the Trans-Pacific Trade Talks (TPT), and according to a letter sent by acting U.S. Trade Representative Demetrios Marantis to Congress, “Japan has confirmed it will participate positively and constructively in the negotiations. Japan also confirmed that it will subject all goods to negotiations—both agricultural and manufactured goods—and will join with the other TPP countries to achieve a high-standard and comprehensive agreement this year.”

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