The Global Economy in Turbulent Times

CHAPTER 60 Abenomics: Japan Comes Alive Again¹

Abenomics is the aggressive management blend of monetary and fiscal stimuli to reflate Japan’s stagnant economy, according to Prime Minister Shinzo Abe. Consequently, the yen weakened considerably, notching 23 weeks of back-to-back falls against the US dollar, completing the longest losing streak in 24 years. The sell-off brought it within striking distance of ¥100 = US$1, a level not seen since 2009. The US dollar has since climbed 25 percent, and €, 9 to 10 percent against ¥ since mid-April. Worries are that yen can move to within 110. This has led to a growing chorus of emerging nations (including China, Russia, Colombia, and Thailand), expressing alarm over the prospect of “currency wars.”

Indeed, many nations around the world are vying to keep their currencies weak as well, through “macroprudential” means, including limited interventions. So much so the Moscow G-20 meeting in February 2013 had to reaffirm that economic stimulus policies should be aimed at lifting domestic growth and not target the exchange rate.

The Asian Shadow Financial Regulatory Committee² (of which I am a member) recommended at its April 18 meeting at Shanghai’s Fudan University that (1) Asian economies, particularly those in Northeast Asia, should refrain from competitive devaluation and protectionist policies, which would have a negative impact on world trade flows; (2) Bank of Japan should be considerate, cautious, and transparent in undertaking further ...