Late Japanese Prime Minister Shinzo Abe’s economic legacy is defined by a namesake strategy.
Under “Abenomics”, Abe, who was shot dead during an election campaign event on Friday, sought to jolt Japan’s economy back to life after more than two decades of stagnation following the collapse of an asset bubble in the early 1990s.
Abe’s strategy had three “arrows” aimed at kick starting economic growth and higher wages: loose monetary policy, fiscal stimulus and structural economic reforms.
Under the first two “arrows,” Abe, who was prime minister from 2006-07 and 2012-20, presided over ultra-low interest rates and quantitative easing alongside tens of billions of dollars in spending on new infrastructure and cash handouts.
The reform plank of Abenomics aimed to boost productivity by cutting red tape and corporate taxes, as well as expanding the country’s rapidly ageing workforce by encouraging the participation of more women, seniors and immigrants.
“We should look to the future, rather than worry about the present,” Abe said in a 2016 speech outlining his economic vision.
“Japan may be ageing. Japan may be losing its population. But, these are incentives for us.”
By most accounts, Abe, who resigned for the second time in 2020 citing ill health, had only partial success in turning around the world’s third-largest economy.
During his tenure, economic growth picked up from the doldrums of the 1990s and 2000s, exports rose, and unemployment dropped to its lowest level in decades.
Between 2015 and 2017, Japan recorded eight consecutive quarters of positive growth – the longest streak in nearly 30 years.
But compared with the heady decades of expansion following World War II and the performance of many of its peers, Japan’s economy failed to impress.
Over the course of Abe’s nearly eight-year second stint as prime minister (excluding 2020, when COVID-19 derailed the economy), real GDP growth averaged just 0.9 percent, according to an analysis by economist Kaya Keiichi.
Abe’s ambitious target of boosting nominal GDP to 600 trillion yen by 2020 never materialised and remains unmet to this day.
Moreover, inflation and wage growth fell short of expectations, putting a damper on the economic gains that were achieved.
“Although government policies can create an environment for reform and innovation by market participants to some extent, in order to actually increase labour productivity and increase investment in innovative technologies by businesses, more efforts for self-reliance among households and businesses are also essential,” Min Joo Kang, senior economist for South Korea and Japan at ING, told Al Jazeera.
“In this respect, the improvement of the real economy was limited. However, I think it was half a success in that it protected the Japanese economy from a sharp downturn.”
While Abe’s immediate successor and ally Yoshihide Suga pledged to continue Abenomics, current Prime Minister Fumio Kishida has sought to distance himself from the strategy, touting instead a “new capitalism” more attuned to the gap between rich and poor.
Last month, Abe branded an economic policy paper drafted by politicians in his Liberal Democratic Party as “idiotic”, after the former leader deemed the proposals to be critical of his signature economic policy, the Asahi Shimbun reported.
Jeffrey Halley, senior market analyst for the Asia Pacific at OANDA, said Abenomics had produced “mixed results”.
“The lack of will to implement the third arrow of economic and trade reform, as Japan fell back into entrenched ways, meant the other arrows only really managed to keep the lights on through the 2010s,” Halley told Al Jazeera.
“Inflation is still non-existent, government debt is much higher, and Japan’s trade barriers and corporate governance remain as intractable as ever. The lack of progress was not down to Abe being wrong strategically, rather it was his failure to overcome entrenched domestic interests and governmental inertia to fully embrace and execute all the arrows.”
Soft landing hopes for U.S. economy brighten outlook on stocks – The Globe and Mail
Optimism is seeping back into the U.S. stock market, as some investors grow more convinced that the economy may avoid a severe downturn even as it copes with high inflation.
The benchmark S&P 500 has rebounded about 15% since mid-June, halving its year-to-date loss, and the tech-heavy Nasdaq Composite is up 20% over that time. Many of the so-called meme stocks that had been pummeled in the first half of the year have come screaming back, while the Cboe Volatility Index, known as Wall Street’s fear gauge, stands near a four-month low.
In the past week, bullish sentiment reached its highest level since March, according to a survey from the American Association of Individual Investors. Earlier this year, that gauge tumbled to its lowest in nearly 30 years, when stocks swooned on worries over how the Federal Reserve’s monetary tightening would hit the economy.
“We have experienced a fair amount of pain, but the perspective in how people are trading has turned violently towards a glass half full versus a glass half empty,” said Mark Hackett, Nationwide’s chief of investment research.
Data over the last two weeks bolstered hopes that the Fed can achieve a soft landing for the economy. While last week’s strong jobs report allayed fears of recession, inflation numbers this week showed the largest month-on-month deceleration of consumer price increases since 1973.
The shift in market mood was reflected in data released by BoFA Global Research on Friday: tech stocks saw their largest inflows in around two months over the past week, while Treasury Inflation-Protected Securities, or TIPS, which are used to hedge against inflation, notched their fifth straight week of outflows.
“If in fact a soft landing is possible, then you’d want to see the kind of data inputs that we have seen thus far,” said Art Hogan, chief market strategist at B. Riley Wealth. “Strong jobs number and declining inflation would both be important inputs into that theory.”
Through Thursday, the S&P 500 was up 1.5% for the week, on track for its fourth straight week of gains.
Until recently, optimism was hard to come by. Equity positioning last month stood in the 12th percentile of its range since January 2010, a July 29 note by Deutsche Bank analysts said, and some market participants have attributed the big jump in stocks to investors rapidly unwinding their bearish bets.
With stock market gyrations dropping to multi-month lows, further support for equities could come from funds that track volatility and turn bullish when market swings subside.
Volatility targeting funds could soak up about $100 billion of equity exposure in the coming months if gyrations remain muted, said Anand Omprakash, head of derivatives quantitative strategy at Elevation Securities.
“Should their allocation increase, this would provide a tailwind for equity prices,” Omprakash said.
Investors next week will be watching retail sales and housing data. Earnings reports are also due from a number of top retailers, including Walmart and Home Depot, that will give fresh insight into the health of the consumer.
Plenty of trepidation remains in markets, with many investors still bruised from the S&P 500′s 20.6% tumble in the first six months of the year.
Fed officials have pushed back on expectations that the central bank will end its rate hikes sooner than anticipated, and economists have warned that inflation could return in coming months.
Some investors have grown alarmed at how quickly risk appetite has rebounded. The Ark Innovation ETF, a prominent casualty of this year’s bear market, has soared around 35% since mid-June, while shares of AMC Entertainment Holdings , one of the original “meme stocks,” have doubled over that time.
“You look across assets right now, and you don’t see a lot of risks priced in anymore to markets,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.
Keith Lerner, co-chief investment officer at Truist Advisory Services, believes technical resistance and ballooning stock valuations are likely to make it difficult for the S&P 500 to advance far beyond the 4200-4300 level. The index was recently at 4249 on Friday afternoon.
Seasonality may also play a role. September – when the Fed holds its next monetary policy meeting – has been the worst month for stocks, with the S&P 500 losing an average 1.04% since 1928, Refinitiv data showed.
Wall Streeters taking vacations throughout August could also drain volume and stir volatility, said Hogan, of B. Riley Wealth.
“Lighter liquidity tends to exaggerate or exacerbate moves,” he said.
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Malaysian economy smashes forecasts, growing 8.9 percent in Q2 – Al Jazeera English
Southeast Asian country continues strong pandemic recovery after reopening its borders in April.
Malaysia’s economy grew at its fastest annual pace in a year in the second quarter, boosted by an expansion in domestic demand and resilient exports, but a slowdown in global growth is expected to pose a risk to the outlook for the rest of 2022.
Gross domestic product (GDP) in April-June surged 8.9 percent from a year earlier, the central bank said. This was faster than the 6.7 percent growth forecast in a Reuters poll and was up from the 5 percent annual rise in the previous quarter.
It was also quicker than any annual rate seen since the second quarter of 2021, when GDP was 16.1 percent higher than a low year-earlier base.
Seasonally adjusted GDP for April-June was up 3.5 percent on the previous three months, when quarterly growth was 3.8 percent.
Malaysia’s economy has been on a strong recovery path since the country reopened its borders in April.
“Going forward, the economy is projected to continue to recover in the second half of 2022, albeit at a more moderate pace amid global headwinds,” Central Bank of Malaysia Governor Nor Shamsiah Mohd Yunus told a news conference.
Full-year growth for 2022 would likely be at the upper end of the previously forecast range of 5.3 percent to 6.3 percent, Nor Shamsiah said.
Headline and core inflation were expected to average higher in 2022, though Nor Shamsiah said any adjustments to the overnight policy rate would be measured and gradual to avoid stronger measures in the future.
The central bank lifted its benchmark interest rate for the second straight meeting in July.
Capital Economics said in a note it expected Malaysia’s economic growth to slow in coming quarters, as commodity prices dropped back and the boost from border reopening fades.
“That said, the slowdown is likely to be relatively mild, with the reopening of the international border set to provide decent support to activity,” said Gareth Leather, the group’s senior Asia economist.
The UK Economy, and Sterling, Face Next Big Crisis This Winter – BNN Bloomberg
(Bloomberg) — Headwinds for the UK economy spell trouble for sterling, and the real test for the Bank of England and the currency may still be in store.
The cost-of-living crisis is about to intertwine with the energy crisis this winter, leaving the BOE in a bind. UK wholesale natural gas prices have more than tripled in the last year and are more than four times higher than the seasonal average over the previous five years. Household energy bills are forecast to rise while the government plans for organized blackouts in a worse-case scenario in January.
If the energy crisis gets out of hand, the market might expect the BOE to pivot because rates can only do so much in the face of supply-driven forces such as Russian gas supplies, inventories, and alternate energy sources that are being tested by climate change.
There is also the question of fiscal support and the uncertainty surrounding it. The BOE has forecast inflation topping 13% in coming months and a recession through 2023 as it raises rates. The central bank is an apolitical body that has no say over government fiscal policies, making whoever becomes the next prime minister that much more significant. Front-runner Liz Truss is pledging an emergency budget and more borrowing to stimulate the economy, while the competing former chancellor Rishi Sunak is advising caution while also vowing to offer more cost-of-living support.
Currency traders aren’t convinced that economic data Friday is enough to prove the economy’s resilience, which is why even as money markets are raising their BOE tightening bets, the pound is the second worst-performing G-10 currency against the dollar on the day.
But it’s fair not to read too much into the curious gross domestic product print. A small contraction was expected given the Jubilee bank holiday, but June’s drop is smaller than in comparable periods, as Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, noted. July data will likely offer a better picture. It’s possible that numbers would either be revised lower or show that the economy has indeed been more resilient than many expect. Looking ahead, however, there aren’t many other concessions that the pound can give way to.
NOTE: Nour Al Ali writes for Bloomberg’s Markets Live. The observations are her own and not intended as investment advice. For more markets commentary, see the MLIV blog.
©2022 Bloomberg L.P.
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