Japan Just Fired The Third Arrow Of Abenomics

Shinzo AbeJapan’s Prime Minister Shinzo Abe (L), standing next to Japan Akademeia head Jiro Ushio, toasts with business leaders and scholars during a banquet hosted by Japan Akademeia in Tokyo May 17, 2013.

Japan’s new approach to reflating its economy – termed “Abenomics,” after Japanese Prime Minister Shinzo Abe – involves three components: unprecedented monetary stimulus, a big boost to government spending, and structural reforms designed to make Japanese industry and institutions more competitive.

These are referred to as the “Three Arrows” of Abenomics.

The Japanese government has already announced plans for the first two “arrows” on the fiscal and monetary fronts. Structural reforms, on the other hand, had not yet really come to the fore of the discussion until today.

Overnight, Abe announced some plans. Reuters has the details:

The latest tranche of Japan’s growth strategy will aim to triple infrastructure exports and double farm exports by 2020, as well as boost private investment, Prime Minister Shinzo Abe said on Friday.

The government will set a target for domestic private-sector investment of 70 trillion yen ($687 billion) annually, Abe said in a speech to business executives and academics, the level before the 2008 financial crisis and up about 10 per cent from the current figure.

The details, of course, aren’t fully fleshed out, but Abe hopes to have a more comprehensive strategy ready for a June 17-18 G8 summit, so we should hear more then.

Credit Suisse’s Henry Russell expressed scepticism, citing fears of a “shift from structural reform to constitutional reform,” writing to clients that “Abe appears more focused on the long term Abe family/LDP goal of constitutional reform, rather than industrial revitalization and social reform.”

“Whatever you choose to believe with regards to Abe’s ‘third arrow’,” says Russell, “the BoJ’s aggressive JGB purchases, reflation, a flood of liquidity and yen weakness should be enough to buoy markets for the next 1-2 years.”

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