Japan’s new Prime Minister Shinzo Abe has chosen Haruhiko Kuroda to be the next governor of the Bank of Japan (BOJ). Once he is approved by the Diet, the new governor is expected to push for unlimited QE to start immediately rather than in 2014. The goal is to reflate the economy with a target of 2% for the inflation rate (Fig. 1). The BOJ’s Policy Board is scheduled to hold its first meeting under the new leadership on April 3 and 4.
The question is: Will Abe’s new fiscal and monetary stimulus programs be any different than the same old tired Kabuki of the past two decades? The fact is that we’ve seen this play several times before with the same unhappy ending. Numerous Japanese governments have resorted to such measures to boost growth rather than implement much-needed economic reforms. Nominal GDP has been virtually flat (up only 0.6%) since Q1-2009, with real GDP up 7.3% (over the entire period!) and the GDP deflator down 6.7% (Fig. 2). The Nikkei is up 34% since November 13, 2012, and the yen is down 15.2% over the same period (Fig. 3 and Fig. 4). However, swings of this magnitude have occurred in the past since 1990 without any significant improvement in the performance of the economy.
The question is: Will Abe’s new fiscal and monetary stimulus programs be any different than the same old tired Kabuki of the past two decades? The fact is that we’ve seen this play several times before with the same unhappy ending. Numerous Japanese governments have resorted to such measures to boost growth rather than implement much-needed economic reforms. Nominal GDP has been virtually flat (up only 0.6%) since Q1-2009, with real GDP up 7.3% (over the entire period!) and the GDP deflator down 6.7% (Fig. 2). The Nikkei is up 34% since November 13, 2012, and the yen is down 15.2% over the same period (Fig. 3 and Fig. 4). However, swings of this magnitude have occurred in the past since 1990 without any significant improvement in the performance of the economy.
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