Japan’s economy is in a sweet spot

Five years after the launch of Abenomics, the programme of massive monetary easing and fiscal stimulus under Prime Minister Shinzo Abe, Japan’s economy is in a “sweet spot”, as Societe Generale’s Takuji Aida told Bloomberg. GDP expanded at an annualised rate of 1.4% in the third quarter of 2017, the seventh successive quarter of rising GDP. This is the longest period of uninterrupted growth since 2001.

A stronger global economy, along with the weaker yen induced by quantitative easing, has given exports a boost. And companies have become more confident, says The Economist. Private investment has jumped by 15% in five years. Unemployment below 3%, has boosted consumption.

The hope now is that the labour market begins to produce significant wage increases, spurring a virtuous cycle of wage and price increases and thus finally propelling inflation to the target of 2%. Meanwhile, structural changes such as improving corporate governance, which has led to higher dividends, have made the stockmarket’s strong earnings growth and low valuations even more appealing. The market rally looks far from over.

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