Weak Japan economic data bolsters new Prime Minister’s hand on stimulus
Poor Japanese manufacturing data yesterday gave new Prime Minister Shinzo Abe more ammunition to push for big spending and easy money to salvage the world’s third-largest economy from decades of deflation and its fourth recession since 2000.
Japanese voters and the financial markets have welcomed the Abe Government’s aggressive stance on pumping cash into the economy, pushing the benchmark Nikkei share average yesterday to its highest level since the March 2011 tsunami, despite the worse-than-expected drop in factory output.
Opinion polls published by major newspapers yesterday showed half to two-thirds of the public supported Abe’s conservative Government, with the stagnant economy the top priority.
Top officials of the new Government, sworn in just two days ago after a landslide election victory, say Abe’s administration is under pressure to achieve quick results.
“(Public support) will drop if speculation mounts that we are unable to deliver,” Akira Amari, the minister in charge of reviving the economy, told a news conference after a Friday morning Cabinet meeting.
But many economists warn that Abe’s emphasis on stimulus, rather than structural reforms to boost competitiveness, may have only short-term effects and could worsen Japan’s bloated public debt, the worst among the industrial nations.
The Government is keeping up pressure on the Bank of Japan to step up its monetary stimulus, even after it loosened policy in December for the third time in four months.
Abe has threatened to change the law which guarantees the central bank’s independence if it does not pursue more aggressive easing and has called for a doubling of its inflation target to two per cent.
Finance Minister Taro Aso said he was paid a courtesy visit by BOJ Governor Masaaki Shirakawa yesterday in which the two agreed to hold talks on issues including coordinating policy.
Aso later told reporters the Government wanted to firm up by next month, before the central bank’s next policy meeting, its position on a joint policy accord it aims to forge with the BOJ on how they will tackle Japan’s entrenched deflation.
The Government has not yet tipped its hand on what specifics might be in the accord but the BOJ has already signalled it may set a higher inflation target at its January 21-22 meeting, even while market participants express doubt that it has the means to achieve it.
Aso also warned that the Government stood ready to intervene in the currency markets against sharp speculator-driven moves that would hurt the economy, although Abe’s monetary easing campaign has in recent weeks eased some of the persistent yen strength that has battered Japan’s exporters.
“If excessive rises or falls in the yen due to speculation cause trouble for a lot of people, intervention would be a powerful tool, so there’s no reason why we would not use it,” Aso said.
Asked whether Japan’s efforts to ease monetary policy and weaken the yen may lead to competitive currency devaluations, he added: “It’s wrong to say Japan is intervening unreasonably.”