Abenomics and Asia

Japanese Prime Minister Shinzo Abe’s economic agenda seems to be working for his country. The question now is whether Abenomics can achieve its goals without destabilizing the world economy, especially neighboring Asian economies.

SEOUL – Japanese Prime Minister Shinzo Abe’s economic agenda – dubbed “Abenomics” – seems to be working for his country. Expansionary monetary policy is expected to inject liquidity into the Japanese economy until inflation hits the Bank of Japan’s 2% target, while expansionary fiscal policy is expected to continue until economic recovery takes hold.

As a result, consumer and investor confidence is returning. The Japanese stock market has soared more than 40% since November of last year, when it became clear that Abe would form the next government, and exports and growth are also picking up. With a large output gap and low inflationary pressure, expansionary policies show great potential for reviving economic activity.

But other countries – including neighboring Asian economies – fear that Japan is devaluing the yen to bolster exports and growth at their expense. Some have accused Japan of fueling a global “currency war.” Anticipation of aggressive monetary expansion has sharply weakened the yen, which has fallen by almost 20% against the dollar in just over four months.

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