Abenomics, the name given to Japan’s experiment with monetary and fiscal stimulus, is designed to end chronic deflation, according to Shinzo Abe, the country’s prime minister. But there is yet little evidence of inflation. The world has merely seen a sharp devaluation of the yen. This devaluation is both unfair on other countries and unsustainable.
Since December the yen has lost about 25 per cent of its value against the US dollar and even more against the Chinese renminbi and the South Korean won. As a result Japan’s exports have accelerated and were responsible for almost half of its annualised 3.5 per cent growth in gross domestic product in the last quarter. The faster rate of exports has driven up expected earnings of large companies and, accordingly, the index of the Japanese stock market by 50 per cent. But core consumer prices remain lower than they did a year ago. Rather than raise expectations of inflation, Abenomics has simply generated expectations of further devaluation.
This type of recovery is unfair since it comes at the expense of Japan’s trading partners. In South Korea, Hyun Oh-seok, finance minister, last month said the won’s appreciation against the yen is a larger issue than whether North Korea launches a nuclear missile.