Where is Japan going?
To answer that question, you have to know where Abenomics is going. Economists around the world have been supportive of Mr. Abe and his “three arrows”—easy monetary policy, fiscal stimulus, and structural reforms. The theory is that the first two can promote growth in the short run, which will provide political cover for the third: changes in labor laws and other regulations that can promote private sector investment-led growth.
Because to return to stable, solid growth Japan’s economy must become more flexible and competitive. Government restrictions, anticompetitive laws, bureaucratic interference, and relatively high taxes all impede growth and make it difficult to do business. Indeed, Japan was ranked 24th out of 185 nations on doingbusiness.org; the US is ranked 4th. Starting a business is especially hard; Japan is ranked 113th in that area, behind Ghana and Tanzanea.
For Japan to turn around, they need to remove the protectionist, crony controls that have grown up over the past 20 years. The reforms will take some time to have an impact. Let’s hope that Japan’s people can wait that long.
Douglas R. Tengdin, CFA
Chief Investment Officer