Japan’s recent recovery, frail as it is, is doing far better than the failing endeavor it’s been pegged as in mainstream media. Understandably, claims on the many faults of Prime Minister Abe’s Quantitative Easing policy have been warranted. This year alone, Japan has faced a shrinking economy in its second quarter and came uncomfortably close to the same designation in the third quarter. Most notably, inflation has been on a steady decline since April and has since stabilized but remains alarmingly close to zero. Dismal as the outcomes have been thus far, the island nation is inching closer to its goals.
To be clear, Japan’s QE program has evolved into more of a QQE (quantitative and qualitative easing) program. The extra character represents the hyper targeted policy, specifically toward driving up the prices of certain assets while bringing their yields down. The new program, which was spearheaded by the governor of the Bank of Japan, was aiming to boost inflation in its first round (2013). Although it hasn’t been quite as successful as expected, the low inflation rate is stuck in part because of falling oil prices.
Similar to the poor luck of falling commodities prices, China’s combustion has taken its toll on Japanese exports and convincing everyone that growing inflation rates will weather time is becoming increasingly difficult for the Japanese government. Moreover, wages have not been rising as quickly as estimated either. During its era of historically low unemployment rates, Japan’s growth has been seriously impeded.
The economies of America, the EU, and the United Kingdom have had arguably far better success with their QE programs. Notably, America had above average results with its purchase of mortgage-backed securities, essentially in an attempt to drive down the mortgage rates and perform damage control for the housing market. Across the pond, the UK’s controversial QE program was deemed unnecessary by many, considering there were less costly solutions to steer the nation out of its credit crunch.
Yet if one can get past the despondency that belies the stagnating growth of Japan’s private sector, there is a lot to hope for. Japan’s custom bout of targeted economic stimulation can’t be written off entirely. Many of the results that have come short are underpinned by a justified lack of pluck displayed by many Japanese business owners. Market makers are fearful of wasting liquid assets on a mediocre opportunity – one that might eventually lead right into a recession. However, the Japanese government will maintain its stoicism and optimism as the economy continues on its sluggish route to a stronger economy.