Visualizing Abenomics - Japan's Dangerous Experiment

Tyler Durden's picture

The early effects of the reform program have triggered a surge in the Japanese stock market, accelerated by the anticipation of growth revival. So far, so good for the markets and traders. But how will Abenomics accommodate public debt of over 200% GDP, and will Abe’s radical policies inspire a long-term economic recovery in Japan? Saxo Capital Markets’ new infographic explores the efficacy of Japan's prime minister's dangerous experiment to stimulate economic growth.

(click image for large legible version)


Via Saxo Capital Markets,

Can Abenomics save the Japanese economy?

Abenomics is based on the untested formula of monetary easing, fiscal stimulus and structural reforms. In early 2013, Abe promised to increase public spending across Japanese infrastructure and renewable energy, committing $116 billion to reignite Japan’s struggling economy. This short-term stimulus aims to boost GDP and job creation by building business confidence and inspiring private investment.

A new inflation target of 2%, conceived by Abe and enacted by the Bank of Japan, prompted a massive quantitative easing programme worth $1.4 trillion. This stimulus measure was introduced with the aim of buying up government debt in a battle to counter deflation. Monetary easing has resulted in a weakening of the yen to the point of a rise in inflation. A devalued yen is a boon to Japanese exports, as manufacturers can sell more goods to a more receptive foreign market. As a result, the Nikkei stock index has rallied by gaining more than 40%, driving stock price increases and, consequently, invigorating business growth. Japan’s lower currency has dipped against the US dollar, with forecasts suggesting wages, prices, employment and business investment will all rise.

The third, and potentially most critical, strategy of Abenomics is the unrolling of proposed structural reforms. Abe’s move to revamp Japan’s healthcare field, energy policies and IT industry is an overhaul in key industry sectors to maintain economic growth beyond short-lived QE lifts and fiscal spending. To what extent does Japan’s financial stability hinge on these structural reforms? Abe’s decision to join negotiations on the Trans-Pacific Partnership (TPP), a regional free trade agreement, may be crucial to elevating the ratio of Japan’s international trade from 20% to 70%, under the free trade agreements.

A series of initiatives to lay the groundwork for future growth includes schemes to help Japanese engineering companies to sell more nuclear power plants and high-speed trains abroad as well as a domestic-based proposal to increase female numbers in the workforce.

For Abenomics to succeed, Japanese households will need to reverse the recent deflationary trend of excess saving and encourage consumers to spend more. In the infographic, Mads Koefed, Head of Macro Strategy at Saxo Bank, suggests that ‘the new experiment in Japan has boosted consumer sentiment and that has now resulted in consumers spending more of their money’. Will a more optimistic outlook translate into a revival for the world’s third largest economy? It is premature to gauge the success of Abenomics at this stage, and there are question marks over the proposed structural reforms. Fears remain over Japan’s alarming national debt, and an eventual rise in interest rates would add a greater burden on the government, undercutting reform measures. Will an offshoot of Abe’s remedies to Japan’s macroeconomic problems inflict a greater debt load?

Further problems await Japan: the unsustainable ratio of the elderly to the working population, fallout should fiscal stimulus fail, and snowballing costs for imports. This symptom of a weakened yen is exemplified by Japan’s post-Fukushima nuclear programme, which relies heavily on imports. Although Japan’s aggressive monetary easing programme has helped the yen devalue against the US dollar, Abe’s monetary easing plans threaten to distort the financial markets. The Bank of Japan’s purchases of financial assets have created significant uncertainty in the bond markets, with Japan’s 10-year government bond unexpectedly rising to a record high in May 2013.

Abe’s structural reforms carry with them several risks. The domestic agriculture sector could suffer from increased marketplace competition should tariffs on imports be removed. Any agreements with the TPP would mean greater dependency on government support among Japanese farmers, adding a further load on finances.

Finally in the infographic, Saxo have looked at the percentage of their clients, based in the UK, that hold a net-long position in the US dollar against the Japanese yen, compared to the number of those who are net-short USDJPY. The majority (83%) hold a net-long position, which reflects the position many traders take on the success of Abenomics.

Data published in late November indicates that household spending has risen 0.9% in October (from 2013 figures), but is this a long-term ascent, leading to stable economic growth?

Recent data suggests the Japanese economy is recovering from its deflationary cycle, with inflation at its highest for a half a decade. Japan’s consumer price index (CPI), which identifies the change in prices of consumer goods and services over a specific period, reveals an upward trend in consumer costs. Is this a sign of Abenomics in action? Next year’s consumption tax increase means the BOJ’s fiscal stimulus is expected to continue during 2014 to target the 2% inflation rate, despite the promising figures in the CPI release.

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Long-John-Silver's picture
Abenomics works just like the process that turns Lead into Gold.
Occident Mortal's picture

Actually Abenomics does work, just so long as nobody asks for a pay rise.

The reason why all this printing is working is that inflation expectations are so low.

After 2008, everyone is so shit scared to ask for a pay rise that the owning class are debasing everyone's currency and transferring half of all the purchasing power ever accumulated to themselves.

The printing will continue until Joe Nobody demands a pay rise.

Winston Smith 2009's picture

As Kyle Bass has pointed out in great detail, Japan is toast in the relatively near term (he says 18-24 months).  There is absolutely nothing they can do that will change that. They are in a death spiral for many reasons and demographics alone is killing them. Most of the essential structural changes listed on the plan can be easily laughed at as vastly over-optimistic. Thus, the final cost of going down for twenty years the same stupid QE-infinity path the US is going down. 

kaiserhoff's picture

Desperation meets incompetence.

  What could go wrong?

remain calm's picture

There is no fucking way it works. You need to just understand basic math and basic finance to realize their is no way out, they are fucked, and the author is a fucking idiot. Believing this can work is like believing in Obama. Good luck assa holes.

Occident Mortal's picture

It actually works really well, just so long as the people lie down and take it.

Abenomics will only fail when Joe Nobody decides he is tired of getting it in the ass and demands a pay rise. Until then everyone will see their purchasing power transferred to the primary dealers and first receivers of the new money.

If people don't stand up to it, it won't fail.

Miffed Microbiologist's picture

Ok, build 250k daycare centers for women who aren't having babies. Is this a "build it and they will breed" idea? And increase tourism. So everyone can gaze and take pictures at the worst nuclear disaster in the world? It appears the idiots who tried to revitalize Flint, Michigan have been successfully cloned.


suteibu's picture

The question no one asks is where are the jobs for all of these women?  Japan is ahead of the US in creating a part-time workforce as it is.

As for tourism, the majority of tourists to Japan are the nouveau riche Chinese.  The growing nationalism in Japan and China is not likely to encourage an increase in Chinese tourists.

Lost My Shorts's picture

Japan is actually a lovely place to tour.  Unlike Europe, where you are hounded by thieves at every train station, Japan is relaxed and pleasant.  Only problem is -- expensive up to now, but the plunging yen should help that.  Also, there is so much public transportation that it's hard to figure out which one goes where you want.  Signs in English but not much spoken.

Uber Vandal's picture

I am going to catch a lot of red arrows for this one but just how can anyone NOT disagree with the woman caller?

How is paying welfare to her, or anyone else really any worse than the trillions pumped into the banks since 2008, or the billions pumped into the markets every single f*****g day.

How is paying welfare to her, or anyone else really any worse than the trillions spent on the war with EastAsia or Whateverstan?

Maybe she is smart enough to have figured out that she will start working when an employer actually starts paying her to work.

Of course, some brilliant commenter will point out automation of jobs, and out sourcing, will eliminate the need for any such employees at all, and we need not worry about the employer needing to pay anyone what they are worth, for no one will be worth anything.

Great, splendid!!

Just one question, where is your customer base going to get its money to buy your products from?

Did it ever occur to anyone that we are truly the snake eating its tail?


Yen Cross's picture

     I'm in observation mode. I'm not sure if it's time or topic.  Watching how people respond to the Japanese Ritalin (Ridalin) based explanation of a 250% debt togdp ratio is entertaining...

rgetty's picture

Im in Japan at the moment in a small town and they have been on a building boom since they announced the hike from 5-8%. They are building so many apartments, homes, 7-11s. Such a waste, the Japanese dont care at all for the enviornment, use nice empty land and farm land and build crappy quality building on them. They even wanted to build a solar power farm on beautiful grazing land but they didnt have the money. The houses are cheap you can have 3-4 bedroom house with NO money down and the mortgage is like 6-700 a month, maybe cheaper. I understand the house building a bit since there must be MILLIONs of crappy old houses here that need to be torn down, yet there are still people living in them, they would save a ton of money on energy since the houses insulation is a little to zero and they use a lot of kerosen heaters for heat. There are also so many empty houses that people have walked away from, the government said they wanted them taken down and since it is expensive they said they would pay up to 80% of the cost! Japan is a truly F-ed place. I wont even get into the burning of garbage here that will be for another post hahah

screw face's picture

.....hey whatever works....MOAR DISASTERS

prmths2's picture

"Help Japanese engineering companies sell more high-speed trains and NUCLEAR POWER PLANTS abroad..." So much for "eating your own (nuclear) dogfood."

tok1's picture

The article loses its validity when it says rates
rise to a record . They reached around 0.9-1% during the sell
off and have been around 0.60% recently ( ie down 0.30% over the last
few months)

Rates in japan pre bubble were 3-6% and prior to this year
the 10y was trading 1.3-0.60% range

Ie rates not only did not reach record levels they
didn't even get near recent high levels . They rose
from 0.34% in 10y ( record low to 0.9%)
Ie a big move but no where near any significant
It needs to sell of 0,40bp to get over 1% to be an issue .

That said a break lower in yen above 105 might begin to get BOJ
worried. It's the inflation caused by weak yen that might force
BOJ's hand and domestic investors .

How the govt reacts then will be key .

Yen Cross's picture

  What part of  usd/jpy .75318 -1.0356 in 2013 did you miss? October 23rd 2011.

   My EBS platform shows spikes.

tok1's picture

The article said ( twice ) rates rose to record levels
when record levels are above 6% and they didn't even reach
I know then yen moved .. but 75-85 is strong historically
for the yen 105-110 is prob where they want it

If it moves quickly above 105-110 ( say if Fed does tapper)
Then BOJ will feel internal pressure to ease up on
buying .
If it breaks 120 their in trouble .

It really is Fed controlled. If no tapper then BOJ can
go on for a while . It's how Yen/ Aud ect react if Fed does tapper.
(Ie in Aud case if Fed tappers. aud does weaken can the RBA
really still leave rates so low . Maybe then housing bubble in trouble .
and for japan weak yen brings JGB trouble .
So fed move is risky for Asia ( but other option is to never
tapper which is risky for US).

So change is coming .

Yen Cross's picture

tok1 you obviously have family in Japan.  usd/jpy will be in the high mid nineties handle as a "close" next week.

   There will be no infusion of yen, and Abe /Kuroda are looking like fools!

 KAMPO can't even keep up with the lack of savings rate!  I expect  the BoJ to loose control of the yen @ 125-145 level of exchange. Once that level is reached the "rate of return" goes negative.

  Japan falls into an abyss, and all the E/M economies follow within Days.  The global liquidity engine seizes!

max2205's picture

Madness. ..all to create trading . volume

TNTARG's picture

Almost all of Japan is poisened with several radioactive isotops as well as the Pacific ocean, the US west coast and some other places.

How can "abenomics" or any other "nomic" work in such a scenario, looking at the future? We're gonna see lots of sick people. Food and medical care are gonna be the issues.

Sorry about this, but only weak people prefer living in denial.

Hedgetard55's picture

Fucking yellow monkeys are ALL going to get assfucked by Abenomics when the yen crashes and they can't afford to buy fucking dogfood to eat.

thestarl's picture

At least they still make decent cars.

Yen Cross's picture

 The off>shoring meme is passe'   people like me make phone calls. 

 Private equity 3-rd world style. That's real- atry.

ChaosEquilibrium's picture

If paying 20% more in energy cost is sucess????  FAILURE!!!!!.....NOBODY....I MEAN NOBODY will admit this! Why?...........Japan is one of the top 3 economies in the World......and NO COLLAPSE IS ALLOWED!


I WILL NOT BE SATISFIED WITH QE and ABENOMICS until Bernanke and BOJ send me a check in the mail for 5 million dollar.........NO NO...I will NOT be happy until they send me 10 million equivilant dollars/bitcoins in BULLION....bars and coins...please!!!

Yen Cross's picture

 I'm just "juxtaposting" your thoughts<

Yenbot's picture

Hey, Chaos! Just BUY usd/jpy when Abe takes office and SELL a year later... oh, shoot! Missed that, did you?

q99x2's picture

As long as everyone is prepared and has their diapers on when the collapse hits Japan what's the problem?

mark mchugh's picture

Spoiler Alert: Japan's Toast

There's absolutely nothing new about Abenomics.  The BOJ has been distorting markets for approaching 25 years, so no one in Japan even remembers how their economy's supposed to work.  Moral Hazard on top of Moral Hazard.  Survival of the most unfit.

This is what happens when you allow governments, bankers, and dip shits who still don't believe house prices should EVER go down, no matter how radioactive, hijack your country.



tok1's picture

In Japan housing prices are down about 50-70% from 1990 levels (so its the otherway around ) ie people think they will never go up in Japan.


ie places that were 250-500K USD in 1990 now sell for  80-150K and same above..


One thing people miss is Govt debt is not the same as personal debt. If there were no central bank it would just be and expansion of the money supply.


Agreed if the money supply is expanded to fast it can lead to hyper inflation and currency collapse and that might happen in Japan,,, but given the central bank / Govt can pay off the debt via increased money supply its not the same as a normal borrower that has limited funds to pay off debt.

The reality is they should move to a new system end the FED/BOJ (why are the people paying interest to expand the moeny supply)   ie go back to Govt controling it with currency back by some hard relevent asset..

The people know what their money is worth in some real term.. and producers (people who make things) get paid properly.

Really its the FED and currrent elite (ie large holders/controlers of currency) that dont want that as it would give the producers (farmers/ manufacturers ect) the power back over the money men...also the Govt loses power as the cant redistribute wealth though devaluation and Govt spending.. (ie TBTF banks that have to receive unlimited funding.. as apposed to just closing them... share holders/bond holders lose..(the comany bankrupt so your suppose to lose if you invest in bankrupt company) and the depositors should be made in full (they received no benifit from the risks /leverage taken ) and its in the socail interest to expand the money supply to keep people;s savings intact (and socally fair) as apposed to expanidng the supply to keep bank shareholders/ employee bonus system and bankrupt companys continuing.


So wont happen any time soon.

moneybots's picture

"One thing people miss is Govt debt is not the same as personal debt. If there were no central bank it would just be and expansion of the money supply.

 Agreed if the money supply is expanded to fast it can lead to hyper inflation and currency collapse and that might happen in Japan,,, but given the central bank / Govt can pay off the debt via increased money supply its not the same as a normal borrower that has limited funds to pay off debt.   The reality is they should move to a new system end the FED/BOJ (why are the people paying interest to expand the moeny supply)"


They are paying interest to expand the money supply because they are creating debt, not paying it off.  Thus government debt is the same as consumer debt.  It is just that the BOJ has a much bigger credit line than those with personal debt have.



Jimmy Carter was right's picture

Outstanding commentary by so many here, thank you!

Tok, yen cross, occidental , rgetty , well done

Notarocketscientist's picture

20 years of this and it hasn't worked - why would it now?