Japan’s not had one, but two, decades of stagnation, in a low-growth, deflationary economy. Having tried massive spending, Prime Minister Shinzo Abe has a new strategy, the first part of which has brought intentional currency devaluation. Many of his constituents have their doubts:
The Economist provides some great background on what the world calls “Abenomics” but workers in Tokyo’s red light district have taken to calling “awanomics”—awa means bubble or lather in Japanese. Abenomics has, the Economist reports, “in the short term, worked awfully well, at least for investors….
Yet if the Bank of Japan succeeds in ending deflation, a fresh problem could arise…. [I]nvestors, uncertain as to how far such success may go, [could demand] a higher risk premium for holding government bonds. The bond market has recently become a lot more volatile.”
A prosperous Japan benefits Americans, too. As for this approach, we’ll see.