Prime Minister Shinzo Abe has vowed to pull Japan out of its deflationary hole. But are his policies, which combine aggressive fiscal and monetary easing, having the desired effect?
The Breakingviews Abenomics Index makes use of up to 10 indicators including consumer prices, inflation expectations; credit demand; manufacturing and construction activity, wages and consumption; Japan's current account surplus; and asset prices. Users can include or exclude each indicator.
The index, which will be updated monthly, is set to an initial value of 100 in January 2000.
It was constructed using the methodology followed by the Conference Board in producing its leading indicators. For more on the methodology, see: here.
Sources
Inflation expectations: Inflation expectations matter tremendously when nominal interest rates are already near zero. Rising inflation expectations can lead to negative real interest rates and encourage credit and investments.Source: Statistics Bureau
Current consumer prices: Japan's consumer prices started falling in 1998. Falling prices discourage spending and make it harder for companies and individuals to service debt.Source: Statistics Bureau
Bank lending: A revival in bank credit is critical for the nominal economy to expand. Deflation reduces the willingness to take on debt as the borrowers' cash flows keep shrinking. Source: Bank of Japan
Manufacturing production: One of Abenomics' unstated goals is to weaken the yen and boost production by export-orientated manufacturers. Ending deflation should also stoke local demand for manufactured products. Source: Ministry of Trade, Economy and Industry
New housing starts: An economic revival should make households more optimistic about home ownership. Mortgage demand should increase, leading to more new housing construction starts. Source: Ministry of Land, Infrastructure, Transport and Tourism
Private consumption: Rising volumes of private consumption will be an important test of whether fiscal and monetary policies are succeeding in creating inflationary expectations, prompting people to bring forward their purchases. Source: Statistics Bureau
Wages: As inflation expectations harden, workers should demand higher wages. Employers, experiencing strong revenue and earnings growth, should also be more generous. Ministry of Health, Labour and Welfare
Current account: The central bank's plan to double its balance sheet in two years by printing more money should weaken the international purchasing power of the local currency; a weaker yen should boost exports and widen the current account surplus. Bank of Japan/Ministry of Finance
Stock prices: Equity prices can fluctuate for a variety of reasons. Nevertheless, they are a useful indicator of whether investors are optimistic about corporate earnings growth. Source: Tokyo Stock Exchange TOPIX index
Bond prices (inverse of yields): The return of inflation could lead to a sudden spike in long-term bond yields, inflicting losses on Japanese banks, insurance and pension companies, not to mention the central bank. Low yields will allow the government to boost its own spending and keep its interest costs under control. Source: Ministry of Finance
For more interactive calculators and agenda-setting comment visit: BREAKINGVIEWS
The Breakingviews Abenomics Index makes use of up to 10 indicators including consumer prices, inflation expectations; credit demand; manufacturing and construction activity, wages and consumption; Japan's current account surplus; and asset prices. Users can include or exclude each indicator.
The index, which will be updated monthly, is set to an initial value of 100 in January 2000.
It was constructed using the methodology followed by the Conference Board in producing its leading indicators. For more on the methodology, see: here.
Sources
Inflation expectations: Inflation expectations matter tremendously when nominal interest rates are already near zero. Rising inflation expectations can lead to negative real interest rates and encourage credit and investments.Source: Statistics Bureau
Current consumer prices: Japan's consumer prices started falling in 1998. Falling prices discourage spending and make it harder for companies and individuals to service debt.Source: Statistics Bureau
Bank lending: A revival in bank credit is critical for the nominal economy to expand. Deflation reduces the willingness to take on debt as the borrowers' cash flows keep shrinking. Source: Bank of Japan
Manufacturing production: One of Abenomics' unstated goals is to weaken the yen and boost production by export-orientated manufacturers. Ending deflation should also stoke local demand for manufactured products. Source: Ministry of Trade, Economy and Industry
New housing starts: An economic revival should make households more optimistic about home ownership. Mortgage demand should increase, leading to more new housing construction starts. Source: Ministry of Land, Infrastructure, Transport and Tourism
Private consumption: Rising volumes of private consumption will be an important test of whether fiscal and monetary policies are succeeding in creating inflationary expectations, prompting people to bring forward their purchases. Source: Statistics Bureau
Wages: As inflation expectations harden, workers should demand higher wages. Employers, experiencing strong revenue and earnings growth, should also be more generous. Ministry of Health, Labour and Welfare
Current account: The central bank's plan to double its balance sheet in two years by printing more money should weaken the international purchasing power of the local currency; a weaker yen should boost exports and widen the current account surplus. Bank of Japan/Ministry of Finance
Stock prices: Equity prices can fluctuate for a variety of reasons. Nevertheless, they are a useful indicator of whether investors are optimistic about corporate earnings growth. Source: Tokyo Stock Exchange TOPIX index
Bond prices (inverse of yields): The return of inflation could lead to a sudden spike in long-term bond yields, inflicting losses on Japanese banks, insurance and pension companies, not to mention the central bank. Low yields will allow the government to boost its own spending and keep its interest costs under control. Source: Ministry of Finance
For more interactive calculators and agenda-setting comment visit: BREAKINGVIEWS