The Abenomics Guide: What is Abenomics?

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Today we’re going to switch up styles and hop into the classroom to learn a little bit about Abenomics. I’ve written about it in countless articles and throw it out like everybody knows what it means. Let’s break it down.

Abenomics is the three arrow approach of monetary easing, fiscal stimulus and structural reform that the Japanese are using to try and break out of their decades long economic malaise. The name is a combination of Prime Minister Shinzo Abe’s name and the word economics. Like over here we’ve got Reaganomics making sure rich people stay that way. They’ve got Abenomics to try and make the land of the rising sun the land of the rising inflation. Pay attention because the Japanese situation is eerily similar to our own. A developed nation with an aging population, changing the demographics and introducing deflationary pressure. Too many savers and not enough young people spending money.

The first arrow is monetary easing. The Bank of Japan has been out there trying to flood the markets with yen to devalue the currency. This essentially puts Japanese goods on sale to the rest of the world. Take a look at a chart of FXY here, the CurrencyShares Japanese Yen ETF (FXY). You can see the move in currency upon initial implementation of Abenomics shortly after Abe’s election in late 2012. Recently, however, the easing has not worked. Even the Nikkei has struggled with shares of the iShares MSCI Japan ETF (EWJ) off over 9% this year.

The second arrow is fiscal stimulus. This consists of things like public works spending and other programs where the government is writing checks to get things done. To fight deflation, somebody has to spend money. In Abenomics, it’s the government taking the lead. Abe recently announced a 28 trillion yen stimulus package. That represents about 6% of GDP.

The last arrow is structural reform. This includes things like lowering corporate tax rates and pushing through the TPP. That’s right, the same TPP that politicians are arguing about in the US right now. And lowering corporate tax rates to make things easier for businesses to make money in the hopes that they spend it on hiring or increasing wages.

The problem in Japan is very similar to the problem we have stateside. There’s a glut of money at the top and it’s not finding its way through the rest of the economy. Corporations are hoarding money on their balance sheets and not making investments. Proponents of programs like Abenomics are using government forces to open up the floodgates. I say, let the market take care of itself. Eventually corporations will have to spend money or they will fall behind their competition. Greed, for lack of a better word, is good.

CURRENCYSHARES JAPANESE YEN TRUST: https://www.zacks.com/funds/etf/FXY/profile?cid=CS-YOUTUBE-FT-VID
ISHARES MSCI JAPAN ETF: https://www.zacks.com/funds/etf/EWJ/profile?cid=CS-YOUTUBE-FT-VID

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