It’s hard to believe but the long ailing Japanese equity market has been among the best performing in the world since late last year - thanks to a jot of confidence produced by a raft of radical new reforms under Prime Minister Shinzo Abe, who was elected to office in December last year under a landside of popular support.
Dubbed “Abenomics”, the new Prime Minister’s vision is that of massive fiscal and monetary stimulus, backed up by radical structural reforms to improve the competitiveness of the economy. To that end, Abe unveiled new fiscal stimulus spending – largely on infrastructure – equal to around $100 billion, or almost 2% of Japan’s near $6 trillion economy.
On top of this, newly installed bank of Japan Governor Haruhiko Kuroda – chosen as he was sympathetic to Abe’s aims – announced an explicit 2% inflation target, which he aims to achieve by 2015. To that end, the Bank of Japan (BOJ) has unveiled the mother-of-all monetary stimulus programs, with plans to double the country’s monetary base over two years. That amounts to buying up government bonds – and pumping out cash – equivalent to around one quarter of nominal national output over this period. Relative to GDP, that’s roughly double the monetary stimulus program unveiled by the United States Federal Reserve.