Martin Wolf: Why Abenomics will disappoint:
Abenomics consists of 'three arrows'. The first is a monetary policy aimed at eliminating deflation. The second is a flexible fiscal policy, aimed at supporting the Japanese economy in the short run and at fiscal stability in the long run. The third is structural reform, aimed at raising investment and trend growth.... Supported by the new monetary policy, Japan is enjoying a cyclical upswing. Deflation may disappear. But hopes for faster trend economic growth are too optimistic and the discussion of structural obstacles too limited. Given its demography, Japan would do well to attain growth of 1-1.5 per cent a year. The country will be unable to combine economic dynamism with fiscal consolidation without a rise in consumption’s share in GDP. Since household savings rates are low, this can only happen if income is transferred from corporations. Nobody seems to be willing to recognise this challenge. It is assumed, instead, that Japan’s already excessive investment should rise still further. This is mistaken. How, then, can the first year of Abenomics be assessed? As an early success, but a far from complete one.