The world’s third largest economy has posted growth of 0.5% (annualised rate 1.9%) in Q3, but this shows that expansion in the economy has eased since the Q2 reading came in at 0.9% (annualised rate 3.8%). Inevitably, these relatively lacklustre results have raised questions about the success of the economic policies of Prime Minister Shinto Abe’s government; policies nicknamed Abeomics. In Q3 2012, the Japanese economy contracted by 3% on an annualised basis.
The current government came to power in December of 2012 and made it clear that its economic goal was to return the nation to growth by accommodative monetary policy and reversing the nation’s long-term price deflation, aiming for a target inflation level of 2%. A softening of the Yen was not a policy decision, but it has flowed from the economic policy, leading to a decline of 30% against the Euro over the year to date. A weaker Yen provides a boost to Japanese exports, but it means that raw materials (imports to Japan) are more expensive. The stock market has reacted well to Abeomics, putting on roughly 60% since he came to office. Stimulus measures and public spending on infrastructure projects has pushed public debt to an estimated 240% of GDP – the worst debt to GDP ratio of any industrialised economy.
A decline in personal consumption between Q2 and Q3 has been blamed for the slowing rate of expansion. Domestic demand is typically the dominant term in any economy and stimulating it is key to Mr Abe’s plans to draw a line under deflation. An unpopular move that Mr Abe is committed to make will see an increase in sales tax from its current 5% to 10% by 2015. This is seen as being critical in addressing (at least in part) Japan’s debt problems.
With all of the nation’s nuclear power plants off-line Japan has announced that it will not be able to honour commitments to reduce CO2 emissions by 25% of their 1990 levels, but should be able to beat the 2005 level by a modest 3.8% in 2020.