Wikimedia CommonsMartin Fackler at The New York Times has a dispatch from Japan regarding the real-world impact of “Abenomics” the government’s three-pronged economic jumpstart scheme.
Abenomics involves ultra-aggressive monetary stimulus, fiscal stimulus, and also structural reforms.
Since it became clear that Prime Minister Shinzo Abe would take office last autumn, the stock market has been on a tear, and the yen has been sliding, but of course the real question is whether the measures will produce a real-world reaction among domestic consumers and businesses.
There are some signs that it’s working.
Even some of Japan’s wary consumers are beginning to indulge. At the plush Takashimaya department store in Tokyo’s financial district, a clerk reported that $20,000 watches had become hot sellers. And a cut-rate sushi chain, which flourished in difficult times, just started a line of upscale restaurants for customers newly able to afford “petite extravagances.”
“Young people even in their 40s don’t remember Japan’s good times,” said Hiroshi Sato, a 64-year-old executive treating himself to one of Takashimaya’s fancy watches. Choosing one from a black velvet tray, he explained his purchase as a bet on Mr. Abe’s success after two decades of his predecessors’ failures.
It’s important to recognise that domestic demand appears to be springing to life.
Because the yen has been dropping, there’s a widespread belief that Abenomics is about weakening the currency to make exporters more competitive. And that may be phone side-phenomenon. But as Lars Christensen has recently pointed out, the theory behind aggressive monetary policy is not about boosting exports, but about inducing domestic activity by raising inflation and demand expectations.
So people buying watches and eating upscale sushi is exactly what the government has in mind.
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