Abenomics transforming gloom to confidence

Abenomics, Japanese Prime Minister Shinzo Abe’s master plan that includes weakening the yen and temporarily boosting infrastructure, has drastically overturned decades of consumer and corporate gloom and will inevitably help Southeast Asia, a critical part of Japan’s global chain, an executive says. 

For several decades, Japan suffered deflation and eroding public confidence especially when its once-global-leading economy was surpassed by its neighbour China. 

On a recent visit to Bangkok, Hajime Fukuzawa, executive vice president and head of global business of Diam Asset Management, a joint venture of Mizuho Finance Group and Daiichi Life Insurance, told The Nation that like many Japanese, he was very excited about Abe’s performance as Japan’s prime minister. 

Fukuzawa, who travels abroad monthly on company business, said many clients had begun asking him why Japan is different now.

“Our answer is strong political will.”

Although Abe’s first tenure as prime minister six years ago was rather ineffective, this time he is backed by strong majorities in the lower and upper houses of the National Diet, Fukuzawa said. 

“These majorities will ensure that many of his policies will be executed.”

Abe has undertaken a very subtle but critical governance change that will ensure the full brunt of his policies will be implemented, he said. 

“The Abe government has decided that henceforth politicians and not bureaucrats will be developing the new regulations and laws.”

In the past, politicians developed the legal framework for new laws. The bureaucrats then developed the rules and regulations and were in charge of implementation. Under this environment, new policy frameworks were inevitably watered down by self-protective bureaucrats. In the new Abenomics environment, politicians and bureaucrats execute the new laws together. 

“With a much greater role given to the politicians,” Fukuzawa said.

Since the beginning of this year, Abe has regularly inspired Japanese citizens such as Furukawa with what appears to be a refreshing political style eschewing normal Japanese bureaucratic political speeches for much more direct communications. 

 

Back to pre-eminence  

Abe has displayed this new direct style during recent public appearances by emphasising Japan’s return to pre-eminence with five main themes – Japan is back, Japan should open up the country to foreign investment, now is the time to invest in Japan, buy Abenomics, and his “Tokyo best safe city in the world” in the recent Japanese Olympics bid.

“We have never seen Japanese PMs use such language in their speeches, and now many cabinet members also want to make their own speeches.”

More important, Abenomics has buoyed domestic sentiment. 

“Our CPI [Consumer Price Index] has now risen for four consecutive months, and money supply has also been increasing.”

Consumer as well corporate psychology has been positively transformed by Abenomics, he said. 

“The yen depreciating  [against] the US dollar has created a new, increasing corporate-profits environment” in first-half 2013 corporate results.

As a result, many companies are now talking more about raising capital investments and other companies are considering increasing dividends and share buybacks. 

“As the CPI continues increasing, it is followed by overwhelming sentiment change.”

At the employee level, where wages have been stagnant because of years of deflation, many large companies are now finally considering hiking salaries in the first quarter of next year. 

“These salary increases will inevitably lead to increased consumption.”

To encourage general salary increases, a tripartite consultative committee of politicians, labour unions and companies has been organised to discuss and implement early-spring pay rises. 

Abenomics has added new life to Japanese capital markets, Fukuzawa said. During the deflationary period, Japanese corporate stocks were primarily purchased by overseas investors. 

“Only about 5 per cent was held by domestic investors.”

Now, with sentiment changing, Japanese are beginning to buy corporate shares. The government has also encouraged the Government Pension Investment Fund to move more funds from safe fixed-income assets to equities. 

“The government’s new individual tax-free savings accounts will also encourage investments in equities and mutual funds.” 

Abenomics has created a very interesting new investment environment in Japan, he said. This environment will inevitably spill over into opportunities for Southeast Asia economies especially as increasing Japanese companies’ corporate profits are accompanied by additional overseas plant investments.