print PRINT


Abenomics put to test by plunging stock prices, yen appreciation

  • 2016-01-13 15:00:00
  • , Yomiuri
  • Translation

(Yomiuri: January 13, 2016 – p. 3)


 By economic reporters Miyuki Yoshioka, Shota Mizuno


 Stock prices have plunged precipitously since the start of 2016. What will this mean for the Japanese economy? While the government is aiming at realizing a virtuous cycle of bigger corporate profits translating into wage increases and more capital investment, a further decline in stock prices decline and appreciation of the yen may dampen personal consumption and have an adverse effect on business performance. Abenomics is facing a major challenge early in the year.


 The Nikkei stock average has dived for six business days in a row for the first time since mid-August last year, when there was a simultaneous plunge in world stock markets as a result of China’s depreciation of the yuan. The Nikkei average has dropped by more than 1,800 points this year.


 The rich who have benefited from the rise in stock prices under Abenomics since the second Abe administration’s launch in 2012 have been purchasing luxury goods. The stock price crunch may dampen the consumer sentiment.


 That the current stock market slump originated from China is also a cause of concern for Japanese retailers. A record 18 million foreign visitors came to Japan between January and November last year, and shopping sprees, mostly by Chinese tourists, propped up consumption here.


 According to Nomura Securities, major companies project an 8% hike in operating profits in the third quarter of 2017, premised on an exchange rate of 120 yen to a dollar. Further yen appreciation will have a major impact on business results of the export industries.


 The economic situation in the newly emerging markets, where Japanese companies are hoping to increase their sales, is also a cause of concern. After the U.S. interest rate increase last December, changes have been observed in the flow of money into the newly emerging economies. The Brazilian and Asian currencies have all depreciated in relation to the dollar. If the U.S. continues to raise interest rates, further currency depreciation may occur in these countries, causing an increase in import prices, which may result in economic stagnation in these economies.


 Economic Revitalization Minister Akira Amari stated at a news conference held after the cabinet meeting on Jan. 12: “As Abenomics makes headway, the impact on Japan’s economy will diminish,” indicating it is possible to realize a virtuous economic cycle. Finance Minister Taro Aso also pointed out that this is “overreacting (to the stock prices drop).”


 The government projects a real economic growth rate of 1.7% in FY16. Wage increases are indispensable for realizing a virtuous economic cycle.


 Management is expected to be more prudent in this year’s spring labor offensive. Business operators are already thinking of a smaller wage increase margin than last year because pay scale increases have already been implemented for two years in a row. If market fluctuations continue, wage increases will be less likely.


 There is an opinion that corporate capital investment “is very likely to be revised downward” due to the downturn in the Chinese economy, according to Meiji Yasuda Life Insurance’s Yuichi Kodama. (Slightly abridged)

  • Ambassador
  • G7 Summit
  • Ukraine