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For the first time since last October, the Japanese economy has reported figures that do not include deflationary prices. Japan's core consumer price index, which includes energy but not volatile fresh food prices, rose 0.2 percent in May from April's recording of a 0.6 percent annual decline in prices. The Bank of Japan's fight against deflation, which has persisted for 15 years and caused the Japanese economy to fall behind China as the world's third largest economy, has set their sights on reaching a 2% inflation rate within the next two years. Prime Minister Shinzo Abe has also made fighting deflation one of his top priorities since taking office 6 months ago, which he claims has been the source of waning profits, wages, and consumption.
Prime Minister Abe and the Japanese government have approached the deflation issue with a "three arrow" plan of aggressive monetary easing, government spending, and economic reforms. Although Abe's cabinet view the recently released figures as signs of successful policies, investor confidence has dwindled due to realist views of trying to turn-around an economy that's deeply fixed on deflationary expectations. Government data has stated that household spending fell 1.6 percent in May, while economists were expecting a 1.3 percent rise. Consumer prices in Tokyo have risen 0.2 percent so far in June however, which Japanese economists expect the country's figures to follow since Tokyo has historically been a reliable indicator for the rest of the country.
Japan's economic outlook for the remainder of 2013 remains uncertain. On the positive side, a weakened yen from the government's monetary easing has boosted industrial production, which rose by 2 percent from April to May. In spite of these promising numbers, the question remains whether increases in corporate profit will sufficiently trickle down to support higher wages and better job opportunities. On the other hand, Japan's investor confidence in Prime Minister Abe's policies experienced a 20 percent decrease in the Japanese stock market following an 80 percent surge in mid-May, therefore displaying the private sector's diminishing trust in Abe's policies. All in all, the policies dubbed as "Abenomics" have thus far experienced positive results, which will most likely continue as long as Abe's government can obtain investor confidence in their bold new policies.
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