Abenomics' impact fading at sensitive moment for Japanese economy | The Daily Star
12:00 AM, June 15, 2018 / LAST MODIFIED: 12:47 AM, June 15, 2018

Abenomics' impact fading at sensitive moment for Japanese economy

Japan's “Abenomics” stimulus program is sputtering just as the government and the central bank wanted to tap the brakes, heightening the chance they will be forced to fight the next economic downturn with a near-empty policy arsenal.

Analysts say Japan will avoid a recession - two consecutive quarters of contraction - and suggest the first-quarter slump was a soft patch caused by temporary factors like bad weather and weak stock markets.

But there are signs growth is moderating after two years of expansion. Factory output slowed and inventory rose in April, a sign firms may have overestimated global demand.

Escalating trade frictions from US President Donald Trump's protectionist policies are taking a toll on business sentiment, which turned negative for the first time in a year, according to a government survey.

Wages are barely rising, even as companies reap record profits from Prime Minister Shinzo Abe's policies. Household spending slumped in April and service-sector activity slowed in May, casting doubt on the strength of consumption - which makes up 60 percent of the economy.

And unlike five years ago, when the Bank of Japan deployed a “bazooka” stimulus package to pull the economy out of stagnation, the central bank is now out of ammunition to spur growth.

Late last year, central bank policymakers were brainstorming ways to communicate an eventual exit from ultra-easy policy as years of near-zero rates strain Japan's banking system, according to five sources familiar with the central bank's thinking. Such debate has died down as clouds hang over the recovery and inflation remains disappointingly weak, they say.

“When inflation is so subdued, it's hard to signal even prospects of a future exit from easy policy,” said one of the sources, expressing a view echoed by two other sources. All declined to be identified because they were not authorized to speak to the media.

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