Abenomics: A danger for Japan and the world
- By Leng Baoqing
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E-mail China.org.cn, December 30, 2013
As 2013 passes, for our neighboring Japan, Prime Minister Shinzo Abe's economic stimulus package will have been in place for almost a year. Reviewing Japan's sprint out of hot water should be a very important topic for economists.
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Abe's current monetary policy to curb deflation is just the same as the policy adopted at the beginning of the Two Lost Decades. |
No matter how we look at the complicated and contradictory economic data recently released by Japan, we should see clearly that the truth of Abenomics is that it is simply "drinking poison to quench thirst" when we look back on history and return to our senses. It is the "moon in the water" [a Chinese proverb insinuating an effort made in vain] and will be very bad for Japan's long-term economic development. It may also lead to an increase in its military budget, a dangerous prelude to something.
When we look back on history, Japan has had one of most glorious economic achievements in Asia and even the world by reviving its economy after World War II, just before China started opening up and reforming in 1978.
However, after the Plaza Accord was signed in 1985, the underestimated yen started to appreciate, and Japan's export industries took a serious hit. To balance the negative impact on Japan's economy as exports shrank, the Japanese government lowered interest rates and implemented expansionary monetary policies. From January 1986 to February 1987, the Bank of Japan lowered the rediscount rate five times and greatly increased the money supply. At that time, the government adopted a tight fiscal policy to reduce deficits, so the increased money supply poured into civil investments, which led to soaring housing and stock prices.
This was an unprecedented economic bubble. When it peaked, international investors were short selling and the bubble burst. Japan went into a serious recession, the so-called Two Lost Decades. Abe's current monetary policy to curb deflation is just the same as the policy adopted at the beginning of the Two Lost Decades. Frankly, as his policy turns actual interest rates negative, the yen will be worth nothing tomorrow, so people would love to spend it today.
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