The early effects of the reform programme have triggered a surge in the Japanese stock market, accelerated by the anticipation of growth revival. So far, so good for the markets and traders. But how will Abenomics accommodate public debt of over 200% GDP, and will Abe’s radical policies inspire a long-term economic recovery in Japan? Do you think fiscal stimulus, monetary policy and structural reforms will revitalise the Japanese economy? Check out Saxo’s latest infographic and join the debate on Twitter @SaxoMarkets.

1. ABENOMICS
Japan’s dangerous experiment
After years of sluggish performance and two decades of deflation, Abenomics aims
to boost Japan’s real economic growth to 3% by 2020 and raise inflation to 2% within
the next two years. But will this untested formula work?
What is Abenomics?
Abenomics is a radical policy experiment engineered by Japan's prime minister,
Shinzō Abe, to revive Japan's economy using a three-pronged campaign of
monetary easing, fiscal stimulus and structural reforms.
?
Fiscal
Stimulus
JANUARY
FEBRUARY
Quantitative
Easing
MARCH
APRIL
MAY
Structural
Reforms
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
11.01.2013
04.04.2013
01.10.2013
Shinzō Abe reveals plans to launch
a ¥10.3 trillion ($116 billion) fiscal
stimulus programme, including public
spending on infrastructure and
renewable energy.
After setting a 2% inflation target, the
Bank of Japan unleashes a massive
quantitative easing programme worth
¥134trn ($1.4tn).
Abe announces plans to raise the
sales tax in Japan from 5% to 8%
in a bid to raise an additional $81
billion in revenue.
Sources: Bank of Japan, Financial Times
How does Abenomics work?
The three economic policy levers have helped
stimulate export growth, boost share prices and
increase consumer spending in Japan through a
number of policy transmission channels.
Fiscal
Stimulus
Quantitative
Easing
Structural
Reforms
increase in
public investments 1
weaker
yen 4
lower long term
interest rates 5
higher
inflation 6
increase in private
consumption 8
+13.9%
-14%
-1.05 bp
+0.9%
+0.9%
rise in
corporate
profits
increase
in exports 3
+14.7%
higher
wages
higher
share
prices 7
+39.3%
economic
growth 2
+1.9%
Year-on-year growth in March 2013
2
GDP for H1, 2013
3
Year-on-year growth in August 2013
1
YTD against the US dollar from
October 1, 2013
5
year to date decline in 10-year
Japanese government bonds
4
CPI inflation for August 2013
Year to date growth in Nikkei as on
October 1, 2013
8
Private consumption for Q1, 2013
6
7
Sources: Bloomberg Market Data, Statistics Japan
Structural reforms key to Abenomics success
While quantitative easing will
move key economic levers and
fiscal stimulus will lay the
groundwork for future growth,
structural reforms will be key to
the success of Abenomics.
UNIVERSITIES
Streamline the approval
process for new medicines and
hospital equipment by creating
a Japanese version of the US
National Institutes of Health.
WOMEN
TRADE
Move 10 Japanese
universities in the global
top 100 in a decade, up
from two today.
Join the Trans Pacific
Partnership with the aim
of increasing the ratio of
Japan’s international trade
under free trade agreements
from 20% to 70%.
DRUGS
FOREIGN
TOURISTS
Raise women’s participation
rate in the workforce by
creating 250,000 day care
places and request companies
to have at least one female
executive.
POWER
DEREGULATION
ZONES
Allow cities and regions,
including Tokyo, to experiment
with deregulation measures
not yet approved for the nation
as a whole.
Use tax incentives to restore
annual domestic private sector
investment to around Y70bn,
its level before the global
financial crisis, in three years.
Increase the number of
tourists visiting Japan from
8.4m last year to 20m in
the medium term.
Split electric utilities
generation and transmission
businesses and open the
monopoly-dominated
residential electricity market
to competition.
INFRASTRUCTURE
EXPORTS
Help Japanese engineering
companies sell more
high-speed trains and nuclear
power plants abroad and triple
the value of transport and
power-generation exports.
BUSINESS
INVESTMENT
FARMS
Doubling agricultural incomes
in a decade through the
promotion of exports and the
consolidation of abandoned
and underused rural land.
Double the amount of foreign
direct investment taken in by
Japan, which currently
accounts for less than 4% of
GDP, by 2020.
FOREIGN MONEY
Source: Financial Times
Abenomics lifts consumer sentiment
May
13,775
45.7
Jun
13,667
44.3
Jul
13,668
43.6
Abe's economic reforms have
been widely welcomed by
investors, with Japan's stock
market up 42 percent* so far
this year. But will Mrs.
Watanabe, Japan's archetypal
housewife, continue to loosen
her purse strings?
Aug
13,388
43
*as of 1 October, 2013.
Apr
13,861
44.5
"The new
experiment in
Japan has boosted
consumer sentiment
and that has now
resulted in consumers
spending more of
their money. “
Mar
12,398
45
Feb
11,559
44.2
12
20
3
201
Jan
11,139
43.2
Mads Koefoed,
Head of Macro Strategy
at Saxo Bank.
Dec
10,395
39.9
Nov
9,446
40.1
NIKKEI 225 INDEX
Oct
8,928
40
CONSUMER CONFIDENCE INDEX
Sep
8,870
40.2
TradingFloor.com Insights Q4 2013
http://www.tradingfloor.com/blogs/quarterly-outlook
The dangers of Abenomics
While the Bank of Japan’s aggressive
easing programme has helped the
yen devalue against the US dollar, it
has created significant uncertainty in
bond markets, with Japan’s 10-year
government bond unexpectedly
rising to a record high in May 2013.
"We have seen some positive signs from Abenomics,
but that was during the anticipation phase. We are now
seeing the reality - more volatility in financial markets."
John Hardy, Head of FX Strategy at Saxo Bank.
USDJPY
JGB 10 YIELD
USDJPY
USDJPY FORECAST
110 100 90 80 70 60 50 40 30 20 -
0.84
0.77
0.80
0.56
0.96
JUN
SEP
2013
MAR
JUN
10 -
2012
2014*
JUN*
*JOHN HARDY FORECASTS USDJPY AT 105 BY THE END OF 2013 AND 110 BY MID-2014.
Sources: Saxo TV, TradingFloor.com
USDJPY
83%
LONG
USDJPY
17%
SHORT
USDJPY
83% of Saxo Capital Markets’ clients based in the UK hold a net-long
position in the US dollar against the Japanese yen compared to 17% of
Saxo Capital Markets’ clients in the UK that are net-short USDJPY*.
*AS OF OCTOBER 16, 2013
Source: Saxo Bank Research
SOURCES:
The Bank of Japan: http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf
Bloomberg Market Data: http://www.bloomberg.com/
Statistics Japan: http://www.stat.go.jp/english/
TradingFloor.com: http://www.tradingfloor.com/tools/financial-calendar
Saxo TV: http://video.saxobank.com/video/8245779/japans-dangerous-experiment
Financial Times: http://www.ft.com/intl/cms/s/0/693cdd54-ccfe-11e2-90e8-00144feab7de.html
Japan Cabinet Office: http://www.esri.cao.go.jp/en/stat/shouhi/shouhi-e.html
This infographic has been produced for information purposes only and should not be considered
as investment advice. Trading margin products can result in losses that exceed your initial deposit.
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registration Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA.