Japan should stick with Abenomics despite volatility in stock market

Stock prices have suddenly turned volatile after steadily soaring on the high regard market players have for Japanese Prime Minister Shinzo Abe’s economic policies, which have been dubbed “Abenomics.”

People should not overreact to daily market fluctuations. The government and the Bank of Japan should steadily proceed with Abenomics and expedite measures to realise a full recovery of the nation’s economy, whose prospects have become increasingly rosy.

The key stock average index on the Tokyo market has been stormy since late last week. On Thursday, the index rose to just below 16,000, but then suddenly plunged by more than 1,000 points, triggered by a worsening Chinese economic indicator. On Friday, Tokyo stocks swung wildly.

On Monday, the index again sharply dropped 469 points to close at 14,142.

In the current state of the market, wary investors are inclined to sell their stocks to lock in profits after experiencing the rapid rise in stock prices that started last autumn.

It is believed that another factor behind the recent accelerating drops in stock prices is a selling offensive launched by speculators overseas in such things as futures to exploit the bearish mindset of investors.

It will be problematic if this unstable market situation continues for a prolonged period and drags down the real economy. The government and the Bank of Japan need to beef up their oversight of market movements.

Rises in long-term interest rates also are a cause of concern. It had previously been expected that the rates would decline as the amount of government bonds purchased by the central bank increased under its quantitative and qualitative monetary easing policy. Instead, they have been rising to levels higher than those before the monetary easing.

A continuation of this trend could dilute the effects of monetary easing, putting a damper on firms’ capital investments as well as housing sales, which would result in a cooling down of the economy. The central bank must make all-out efforts to arrest rises in the interest rates.

Rising stock prices and a correction in the appreciation of the yen since autumn can be attributed to the early expectations for Abenomics. We hope the government will give a boost to the economic recovery with concrete measures to solidify market confidence in economic policies.

Abe’s strategy for economic growth, or the “third arrow” of Abenomics, is particularly important. To enhance the vigor of the private sector and achieve sustainable growth, it is essential to implement reforms to take on vested interests and change regulations that have prevented the entry of newcomers. Policy measures must also be taken to provide support in such areas as research and development.

We consider it important for the government to hammer out a bold policy and swiftly promote it.

Given the poor track record of the growth strategies of previous administrations, the government should draw up a road map to realize its growth strategy by establishing systems that are powerful enough to neutralize the negative effects that have resulted from the vertically segmented administrative structure of ministries and other government bodies.

Meanwhile, private companies ― the main drivers of growth ― should positively regard the fact that stock prices soared on prospects for recovery in their performance, backed by the yen’s ongoing depreciation.

How can they strengthen their profit-earning capacities by opening up new markets with creative and innovative efforts as well as a can-do spirit? They will be tested for their true abilities concerning aggressive business strategies.

(The Japan News)

(Asia News Network)