Hard-Boiled Wonderland: Will ‘Abenomics’ make it past winter?

Summary

Japan implemented a sales tax hike on April this year, which tipped the Japanese economy into a technical recession, as GDP contracted by -7.3% q/q and -1.9% q/q in Q2 and Q3 respectively. This prompted Prime Minister Shinz? Abe to postpone the next sales tax hike to 2017 and to call for a snap general election. Should Abe’s Liberal Democratic Party win the anticipated elections, which are taking place on December 14, this will give him enough leverage to push forward necessary reforms over the next term. However, in order to successfully garner more support from detractors and prove the efficacy of his economic program, he will have to put more emphasis on structural reforms, or the “third arrow” of Abenomics. These include: achieving the right balance between fiscal consolidation and structural reform, tackling excessive savings in the corporate sector, prop-up wages to revive domestic consumption demand and addressing Japan’s demographic burden.

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