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.
What Your Peers Are Reading
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.