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Abenomics

The Great Tohoku Earthquake and Tsunami of March 11, 2011 was the most catastrophic event in Japan since World War II and severely disrupted the health of the Japanese economy.  A country already facing several macroeconomic challenges such as deflation, an aging society, massive public debt and a strengthening yen, the events of March 11 only added additional pain with over $200 billion U.S. dollars in infrastructural damages.

Since March 11, 2011, Japan has been downgraded by both Moody’s (August 2011) and Fitch (May 2012) due to growing risks from the country’s rising government debt, which is expected to reach 239% of gross domestic product by the end of the year, and a Yen the continues to strengthen against the U.S. dollar.

Nevertheless, Japan has shown resilience in the face of recovering from the tsunami and earthquake damages by maintaining exceptional financing flexibility, its ability to fund itself at low rates, and more than anything, the ability of Japanese manufacturers to recover from a supply chain paralysis caused by the tsunami. 

Abenomics is a bold spending push to end deflation and boost growth through setting a new 2% inflation target rate and an aggressive monetary easing policy under the new Bank of Japan Governor Haruhiko Kuroda. 

The markets are rallying in anticipation of these new policies spurring growth but in order for economic recovery to be sustainable in the long-term it is still necessary to see a real change in the fundamental structure of government policy.  Questions still exist around the government’s response to dealing with a shrinking and aging population, and, also, whether Japan will open up to more foreign direct investment is unclear.   An increase in capital due to new foreign investment and the easing of immigrations barriers will all support the rebuilding of Tohoku and the economy overall. 

 

 

 
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