This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Japan Prime Minister's Toughest Test

"The evidence is that the wealth effect is much more modest than most people would like to believe," said William Grimes, a professor at Boston University.

If fixing Japan's economy sounds a bit like a Rube Goldberg contraption, where everything has to be set up just right for the ball to wind its way toward its final destination, it probably is.

"This is sort of a social experiment," said Masamichi Adachi, an economist with J.P. Morgan in Tokyo. "If people believe tomorrow will be better than today, then they may start borrowing and spending. If people spend, then corporations will pay higher wages."

But he adds that, "Many people like myself feel this is still uncertain. Also this is a little dangerous to continue this policy because if people don't follow it then asset prices will collapse."

As the yen's value has declined following Abe's election, the surging cost of natural gas and crude oil imports to replace nuclear power generation suspended after the tsunami disaster in March 2011, has tipped Japan's trade balance into the red. For now, the country's current account remains robustly positive and most of Japan's massive mountain of public debt is owned by domestic investors. But if the deficits were to persist for too long, Japan could come to rely on foreign buyers to support its public debt, Adachi said.

"That would be the time many people would require risk premiums and that means interest rates would spike up," he said. "In the short term, it's under control."

In any case, Japan will need plenty of luck, including a stable world recovery, to succeed now where it has failed in the past, and in managing its fiscal balancing act.

Abe says he is determined to push ahead with various reforms to make Japan's economy more modern and competitive. One of the biggest initiatives is Japan's commitment, announced last month, to join the Trans-Pacific Partnership, an Asia-Pacific-wide trading bloc meant to open markets wider to trade among its dozen or so members, which range from Chile and tiny Brunei to the U.S. and, if all goes well, Japan.

3 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $127.60 0.00%
FB $83.09 0.00%
GOOG $535.38 0.00%
TSLA $205.27 0.00%
YHOO $44.66 0.00%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs