New Japanese Prime Minister Shinzo Abe has only been in office for one month and he is already being attacked by die-hard, but nonetheless prominent, proponents of the British economist, John Maynard Keynes.
Abe has been outspoken in his defence of the “Abenomics” plan he set in place during his campaign which calls for the curbing of the power of central banks and a need for them to assist governments erase their deficits in order to revitalise the world economy.
The new PM has won a fair amount of praise from certain areas of the financial community, but it seems there are most definitely limits to Mr Abe’s plans.
Although the Bank of Japan (BOJ) agreed to buy up bonds and other assets, which injected trillions of yen into the monetary base and also set a 2 percent inflation mark, the central bank did not do so without a fight.
From the minutes of the BOJ meetings it would be very difficult to glean any optimism that the inflation target is at all reachable. Not any more than the previous goal of 1 percent anyway. There have only ever been half-hearted comments over the time it will take to reach this highly unlikely target also, with phrases like “as quickly as possible” being bandied around in the last few months. Most of the onus seems to be on Abe’s administration to reach the inflation goal, with the BOJ acting as a mildly disinterested junior partner in the dream.
Indeed, none of the banks major forecasts have changed a significant amount since the new government came to power.
The BOJ are due to start their open ended asset buy up next year, and have not made any clear announcement that they feel this, and other monetary easing techniques, will help kick start Japan’s stagnant economy. They even went as far as attempting to tone down the idea that fiscal stimulus is the solution to Japan’s economic quagmire.
Some reports, like that released by trading company Sinolink Japan, have shown that even when the monetary base is strengthened, the amounts being considered are so small that they are unlikely to have any effect on growth.
These reports, and similar data, are welcome ammunition for those dyed in the wool Keynesians who believe it is up to governments to spend more, and lower taxes to spur consumer spending and achieve economic development.
