Questions raised over Japan PM's economic reforms






SINGAPORE: Signs of aggressive economic reforms in Japan under newly elected Prime Minister Shinzo Abe have given the Nikkei a lift.

Some are even calling it the most exciting piece of news to come out of Japan since the Walkman.

But economists warn against being overly bullish.

Mr Abe came into power on a campaign promising among other things to make Japanese people proud of themselves again.

His strategy is to spur the economy by raising government spending and easing monetary policy.

This will also require greater cooperation from the central bank.

Some critics have raised questions over his plan, calling it a policy of print and spend.

Alvin Liew, a senior economist at UOB, said: "For example, when the Japan economy gets back onto trend growth, how are they going to attempt to retrieve all the monetary easing stimulus that they have injected into the economy. If they have no credible plan, that will set them on a very dangerous route towards various kinds of future financial and economic disaster."

Mr Abe aims to achieve his objectives by reforming regulations and institutions.

His first target is the Bank of Japan, which is being pressured to double its inflation target to two per cent and stimulate the economy by buying more government bonds and treasury discount bills.

With Japan's budget deficit at 240 per cent of gross domestic product, some economists see Abe's strategy as a gamble.

If successful, the Japanese yen could slip lower, just enough to help boost exports but not make energy and production costs unbearable.

Vishnu Varathan, a market economist at Mizuho Corporate Bank, said: "For a while now, the exporters have been suffering, they've been taking a hit from a more expensive yen. I think the double whammy is that during this time, the won has weakened substantially and (South Korea) is one key competitor with Japan in terms of market share, whether in terms of a shrinking market or a stagnant market."

For businesses and consumers, the problems that weigh down Japan's economy are familiar.

The big question is whether new solutions can be pushed through, with old faces once again at the helm.

- CNA/fa



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