Last Chance for Japan?

Notwithstanding all of the fanfare surrounding “Abenomics,” Japan’s economy remains moribund. But if Japan pays greater attention to likely shifts in the Chinese and US economies, it could be one the greatest beneficiaries of their coming rebalancing.

NEW HAVEN – Japan is the petri dish for the struggle against the secular stagnation that is now gripping most major developed economies. And, notwithstanding all of the fanfare surrounding “Abenomics,” Japan’s economy remains moribund. In the six quarters of Shinzo Abe’s latest stint as prime minister, annualized real GDP growth has averaged just 1.4% – up only slightly from the anemic post-1992 average of 1%.

Abenomics, with its potentially powerful combination of monetary and fiscal stimulus, coupled with a wide array of structural reforms, was supposed to end Japan’s “lost decades.” All three “arrows” of the strategy were to be aimed at freeing the economy from a 15-year deflationary quagmire.

Unfortunately, not all of the arrows have been soaring in flight. The Bank of Japan seems well on its way to delivering on the first one – embracing what it calls quantitative and qualitative easing (QQE). Relative to GDP, the BOJ’s monetary-policy gambit could actually far outstrip the efforts of America’s Federal Reserve.

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