Abenomics sceptics are jumping the gun

Pessimists who bemoan Abenomics’ seeming lack of impact are jumping the gun, says J.P. Morgan Asset Management’s Tony Lanning

Abenomics sceptics are jumping the gun

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Lanning’s comments come in the wake of the news that Japan has dragged itself out of recession, with GDP growing 0.6% in the last quarter.

However, despite the apparent positives, there are still doubts in some quarters over the effectiveness of Shinzo Abe’s tri-arrowed policy – scepticism that the JPMAM multi-manager dismissed as premature.

“The growth number was quite a bit lower than forecast,” Lanning conceded. “But there are plenty of doubters out there, and they will draw the conclusion that either Abenomics is not working or is working much slower than was hoped.

“We are past the low point, and from what we have heard on the ground in Japan the economy is doing well. Japan is one of the biggest beneficiaries of the falling oil costs. Manufacturers are doing well, and while we haven’t seen that reflected in corporate earnings yet, it will be.”

Lanning went on to explain that Japan’s principle economic figures do not reflect the underlying progress.

“This is not about QE or the yen weakening, but that fundamental changes in companies and refocus on equity is happening,” he said.

“This restructuring story will take time and needs patience. Although the headline figures look a bit disappointing today, the reflationary trade in Japan, such as banks, were up almost 3% today [16 January].

“[Until recently] the more defensive part of the Japanese market has been doing well while the reflationary trade has been lagging, but it is now starting to work.”

Lanning’s confidence is represented in his portfolio, where his interest in Japan – particularly the finance sector – merits an 18.5% portion of the high-risk Fusion Growth Plus Fund.

Conversely, squarely in the sceptics camp sits Courtiers Investment Services chief investment officer Gary Reynolds, who is struggling to see the logic in Abenomics.

“The GDP figures are very disappointing,” he said. “There is a hell of a lot of government debt and QE to very little effect. There has not been any real wage growth for 25 years.”

Reynolds agrees with Lanning’s view that the movement of the Japanese economy is a long-term story – but that is where the similarities end.

“It is a long-term story, in that Japan is going to get worse and worse,” he explained.

“They have not paid enough attention to the demographic changes – the declining population is going to negatively impact investment in the country. Also, it is such a stale and closed economy that everything they try doesn’t work.

While QE was widely viewed as something that would spur Japanese growth, Reynolds believes that the implementation of the policy is actually exacerbating the country’s problems.

He said: “The main reason that Japan is going down is that it allows its companies to sit on massive cash balances and does not force them to invest or spend it. The recent policies that they have introduced actually encourage that. Who does a cheaper yen benefit? Not the average Japanese family, because imports are suddenly so much more expensive.

“Japan is discouraging consumer spending, and is so besotted with their exporting champions that it can’t see that it is that supposed strength that is an endemic economic weakness. It is probably too late for Japan to solve its problems.”

Reynolds maintains that it is too late for Japan to apply any measures to arrest what he says is an economy in terminal decline, but offered what he believes is the only possible solution.

“Tax cash,” he said. “It is that simple. Tax cash until the companies give it all to the shareholders.”
 

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