(Bloomberg) — The almost 8-year era of Abenomics draws to a close with Japan’s economy right back at square one.
Prices are flat lining and the deflationary mindset seems as entrenched as ever. Many of the women who entered the labor market under Prime Minister Shinzo Abe’s tenure are losing jobs as Covid-19 batters the economy. Households and companies are in saving mode again amid the pandemic, forcing the government to borrow heavily to cushion demand.
It wasn’t meant to end this way. Abe, who announced on Friday afternoon in Tokyo he would step down due to health problems once his ruling party decides on a successor, came to office with grand plans to snap Japan out of its two decades of stagnation. What would become known as Abenomics relied on “three arrows”: monetary easing, fiscal policy and regulatory reforms.
There were quick successes. Newly-appointed Bank of Japan Governor Haruhiko Kuroda, hand-picked by Abe, pleased markets with ultra-low interest rates and bond-buying that drove a rally in stocks and sent the yen lower, boosting exporters. Inflation even started to perk up and officials were able to declare Japan had clawed its way out of the deflation that had plagued its economy for so many years.
Japan’s Longest-Serving Premier Abe Resigns Due to Health
As companies reported record earnings, Abe repeatedly urged them to raise wages so that workers would be more willing to spend. While pay did rise, it was never quickly enough to spur the sustained pick up in spending that was needed to drive inflation securely to the BOJ’s 2% target.
Also at Abe’s urging, the female labor participation rate steadily climbed, reaching a record high. That’s helped the economy continue to expand, albeit at a modest pace, despite Japan’s aging workforce. Tourism boomed, helped by a weaker yen and regulatory changes. The Tokyo Olympics, which were to have been this summer, fueled investment and were meant to be a highpoint for the nation’s economy.
Kathy Matsui, vice chair of Goldman Sachs Japan, who has long advocated a shakeup of Japanese society to better harness women in the workforce, said Abenomics will be remembered for, on balance, growing the economy, creating jobs and keeping deflation at bay. “The question going forward is will the next successor be able to tackle the remaining reform agenda items, and will the successor be able to bring Japan once and for all out of deflation,” she said.
The clear wins of Abenomics end there.
Even before this year’s massive rescue package worth about 40% of GDP, the budget remained deeply in the red, despite the fact that Abe raised the sales tax in 2014 and 2019. Regulatory reforms to cut red tape failed to really overhaul the system or initiate enough innovation to notably boost productivity. One example: aged administrative systems delayed the distribution of payments to households in recent months, weighing on recovery prospects.
The impact of monetary easing also weakened as the years rolled on, with a turning point being the BOJ’s introduction of a negative interest rate in 2016. That led to concerns that the policy was weighing on the profitability of financial institutions — particularly small rural lenders.
Abe’s second sales tax hike in October 2019 turned out to be spectacularly ill-timed. First, major typhoons hit the economy. Then, the coronavirus put everything into tailspin. The BOJ has had to shift its focus from trying to revive inflation to throwing lifelines to businesses with new lending programs and yet more asset purchases.
The upshot: domestic demand continues to rely heavily on government spending and the prospect of a robust expansion that can generate a sustained acceleration in inflation appears distant — just like it did before the start of Abenomics. And after the Covid-induced second quarter slump, the economy has shrunk back to its size after the 2011 tsunami and nuclear disaster.
What Bloomberg’s Economist Says
“In the short term, we don’t anticipate any significant changes in macro policy. The Bank of Japan, under Governor Haruhiko Kuroda, is set on supporting Japan Inc. during the pandemic and has a flexible policy framework in place under which it can scale stimulus as needed. Fiscal policy is basically set for now with massive stimulus packages in place.”
— Yuki Masujima, economist
Click here to read more.
“Every time the global economy takes a turn for the worst, Japan gets dragged down by it,” HSBC Holdings Plc global chief economist Janet Henry told Bloomberg Television. “As much as I think the history books will treat him well in terms of trying to deliver some transformational changes, it shows what happens in an economy that can still be quite export dependent and still has a number of domestic challenges.”
It’s unclear what comes after Abenomics. But economists don’t see any imminent change in the direction of monetary policy, since Kuroda’s term doesn’t end till April 2023. The bank will continue with its current monetary easing despite Abe’s resignation, people familiar with the matter said. Still, stocks fell earlier Friday as news of Abe’s resignation began to emerge.
In his press conference Friday, Abe acknowledged that the pandemic has had a “major economic impact,” but said his government has managed to contain the damage relatively well compared with other developed nations. As to his legacy, “it’ll be decided by the people and by history,” Abe said.
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UPDATE: Trudeau throne speech emphasizes economic support for Canadian workers, economy – The Guardian
A speech from the throne delivered in Ottawa on Wednesday emphasized a number of enhancements to existing programs put in place in response to the pandemic but did not offer large-scale social policy reforms, such as a basic income guarantee, that were hinted at by government weeks ago.
The speech, read before parliamentarians by Governor General Julie Payette, outlined the Justin Trudeau government’s immediate plans to respond to the continuing COVID-19 pandemic in the coming months. While the severity of cases of the virus has diminished since a high point seen last spring, a recent spike in cases in Canada’s most populous provinces has provoked fears of the social and economic effects of a second wave across Canada.
In the speech, Payette said the immediate public health response to the continuing pandemic is the first priority of government. The speech pledged to improve rapid testing capacity in Canada and pledged additional short-term assistance for businesses forced to close due to future public health orders. Payette also briefly addressed plans to deploy a vaccine for the virus, although it remains unclear when a vaccine will be approved by health officials.
“The government has already secured access to vaccine candidates and therapeutics while investing in manufacturing here at home. And to get the vaccines out to Canadians once they’re ready, the government has made further investments in our capacity for vaccine distribution,” Payette said.
The bulk of the 53-minute speech focused on immediate economic and social support for Canadians in the coming months, as well as plans for a longer-term economic recovery.
Notably, the speech did not include a pledge to create any new economic supports on the scale of the Canada Emergency Response Benefit (CERB), which will begin to transition to a program under the Employment Insurance system at the end of September.
In terms of commitments in the coming months of the pandemic, the government pledged to:
- Create one million jobs as part of a green economic recovery;
- Extend the Canada Emergency Wage Subsidy until next summer;
- Create a transitional Canada Recovery Benefit for individuals who would not qualify for EI;
- Provide more supports for self-employed individuals and gig workers through the EI system.
The speech also included a pledge to “make a significant, long-term, sustained investment” in childcare, but stopped short of committing to a universal childcare program.
In a moment that harkened back to the Trudeau government’s successful 2015 election campaign, the throne speech also pledged to better tax “extreme wealth inequality,” address tax avoidance by tech giants and limit stock option deductions for the wealthy.
The speech also pledged to improve protections for seniors in long-term care homes by penalizing those who neglect seniors. The speech also pledged to “accelerate steps to achieve” a universal pharmacare program.
The more ambitious components of the speech focused on climate change and green economic recovery. The commitments included:
- Legislated commitments for achieving net zero emissions by 2050;
- Improving upon Canada’s emissions reduction goals by 2030;
- Making zero-emissions vehicles more affordable;
- Creating a new national water agency; and
- Planting 2 billion trees.
The Trudeau government’s speech from the throne followed the prorogation of parliament in August, after sustained pressure on the government for its handling of the WE Charity scandal.
At that time, Trudeau said the move would allow the government to focus on a plan for a recovery of the Canadian economy after the COVID-19 pandemic.
Trudeau’s decision to prorogue parliament effectively brought an end to scrutiny of the government’s handling of the WE Charity controversy by several standing committees.
In the weeks that followed, sources in government had communicated to media that the throne speech would set out bold, social initiatives, including a proposal for a Basic Income Guarantee, as well as plans for a “green recovery” of the economy.
But in recent weeks, government staff had downplayed the possibility of large-scale, costly social programs.
Racism has cost US economy $16 trillion in 20 years: Citi report – Yahoo Canada Finance
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="According to a new report from Citi (C), systemic racism in the United States has had a huge cost to the economy: $16 trillion over the past two decades. ” data-reactid=”16″>According to a new report from Citi (C), systemic racism in the United States has had a huge cost to the economy: $16 trillion over the past two decades.
That’s the combined cost of disparities in wages, education, investment in black-owned businesses, and the housing market.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“Racial inequality has always had an outsized cost, one that was thought to be paid only by underrepresented groups,” said Citigroup Vice Chairman Raymond J. McGuire. "What this report underscores is that this tariff is levied on us all, and particularly in the U.S., that cost has a real and tangible impact on our country’s economic output. Now, more than ever, we have a responsibility and an opportunity to confront this longstanding societal ill that has plagued Black and brown people in this country for centuries, tally up the economic loss and as a society, commit to bring greater equity and prosperity to all."” data-reactid=”18″>“Racial inequality has always had an outsized cost, one that was thought to be paid only by underrepresented groups,” said Citigroup Vice Chairman Raymond J. McGuire. “What this report underscores is that this tariff is levied on us all, and particularly in the U.S., that cost has a real and tangible impact on our country’s economic output. Now, more than ever, we have a responsibility and an opportunity to confront this longstanding societal ill that has plagued Black and brown people in this country for centuries, tally up the economic loss and as a society, commit to bring greater equity and prosperity to all.”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The $16 trillion drag on the U.S. economy since 2000 is particularly felt in the area of capital investment of black-owned businesses. A 2019 study from Illumen Capital found that $35 trillion of capital would be allocated differently, were it not for racial and gender bias. ” data-reactid=”19″>The $16 trillion drag on the U.S. economy since 2000 is particularly felt in the area of capital investment of black-owned businesses. A 2019 study from Illumen Capital found that $35 trillion of capital would be allocated differently, were it not for racial and gender bias.
According to the estimates from Citi’s research, racism impacting Black entrepreneurs has cost the United States $13 trillion of business revenue and potentially 6.1 million jobs that could have been created — each year.
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Closing the gap” data-reactid=”21″>Closing the gap
What’s more, closing the wage gap between Black and white employees could have added $2.7 trillion — or 0.2% of GDP each year to the American economy.
“Improving access to housing credit might have added an additional 770,000 Black homeowners, adding $218 billion in sales and expenditures,” the study found, while improving access to college for Black students could increase the income of Black employees by up to $113 billion over their lifetimes.
“Present racial gaps in income, housing, education, business ownership and financing, and wealth are derived from centuries of bias and institutionalized segregation, producing not only societal, but also real economic losses,” the study noted.
“However, future gains from eliminating these gaps are enormous: benefiting not only individuals, but also the broader U.S. economy with positive spillover effects into the global economy.”
If racial gaps were eliminated, Citi estimates that over the course of the next 5 years, roughly $5 trillion could be added to the country’s GDP.
That’s an average of 0.35% of GDP growth each year.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Goldman Sachs in July published a report saying that reducing racial income inequality “could also deliver a boost to the level of US GDP of around 2%, which currently equates to just over $400 billion per year.”” data-reactid=”39″>Goldman Sachs in July published a report saying that reducing racial income inequality “could also deliver a boost to the level of US GDP of around 2%, which currently equates to just over $400 billion per year.”
The benefits wouldn’t just remain domestically: the study also notes that 0.09% growth would be added to global growth.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Citi on Wednesday announced it plans to spend over $1 billion to help address racial inequality over 3 years. The plan would include programs to help increase access to banking and credit to Black and brown communities, which are traditionally underbanked. The initiative would also aim to increase investment in Black-owned businesses and help more Black households purchase homes. ” data-reactid=”41″>Citi on Wednesday announced it plans to spend over $1 billion to help address racial inequality over 3 years. The plan would include programs to help increase access to banking and credit to Black and brown communities, which are traditionally underbanked. The initiative would also aim to increase investment in Black-owned businesses and help more Black households purchase homes.
In its report, Citi wrote: “The persistence of racially-biased attitudes, coupled with the implementation and maintenance of policies enshrining these attitudes, constitute what is often termed as systemic racism. Biases may be conscious or unconscious. Nonetheless, the result of policies creating and perpetuating bias produce inequality. Even when the biases fade, the policies may linger, rendering the inequality multi-generational as it becomes interwoven with the way things are done: in broader society, government, corporations, and/or institutions.”
“We are in the midst of a national reckoning on race and words are not enough,” said Chief Financial Officer Mark Mason. “We need awareness, education, and action that drive results.”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Read more:” data-reactid=”44″>Read more:
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Tech lifts world stocks as economy back in focus – TheChronicleHerald.ca
By Danilo Masoni
MILAN (Reuters) – World shares stabilised and the dollar rose on Wednesday with overnight gains of stay-at-home Wall Street tech champions helped balance concerns that new restrictions to counter resurging coronavirus infections will hurt economic recovery.
First indications from global surveys about economic activity in September gave a gloomy picture for Europe with rising COVID-19 infections leading to a downturn in services.
MSCI world equity index .MIWD00000PUS>, which tracks shares in 49 countries, was 0.2% higher by 0821 GMT, while the pan-European STOXX 600 .STOXX> benchmark rose 1.1%.
Tech shares were the strongest gainers in Europe following a rally overnight in big U.S. tech stocks Amazon , Microsoft , and Apple .
“This strong performance on the part of U.S. stocks is likely to translate into a similarly positive open for European stocks,” said Michael Hewson, analyst at CMC Markets in London.
“However there is rising concern that in light of surging infection rates across Europe, and the beginnings of a rise in hospitalisations, that the economic rebound from the lockdown lows is set to finish the year with a whimper,” he added.
The PMI survey showed euro zone business growth ground to a halt this month as the service industry shifted into reverse, knocked by a resurgence in coronavirus cases that pushed governments to reintroduce restrictions.
French business activity slowed to a four-month low in September, while Germany’s private sector continued to recover from the coronavirus shock.
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS> rose 0.2% for its first gain this week, but the mood was hardly bullish. Japan’s Nikkei .N225> returned from a two-day holiday to slip 0.1%.
Nasdaq futures remained near Tuesday’s highs, up 0.1%. S&P 500 futures were 0.3% higher.
In foreign exchange markets, the standout mover was the gaining dollar, which was up 0.10% against a basket of six major currencies .DXY> at its highest level since July 27.
“Risk aversion on the back of new COVID-19 infections affecting Europe more directly remains an important factor this week,” UniCredit strategists said in a note. “This means that the USD is likely to remain firm in its role as preferred safe-haven currency.”
Meantime the euro hit a seven-week low and was last down 0.12% at $1.1693, on concerns about coronavirus infections and after the tepid European surveys.
Commodities were also weighed down by the robust dollar and worries linked to economic impact of a second wave of COVID-19.
“A resurgence in cases could prove to be a stumbling block for the demand recovery, although any lockdowns moving forward are likely to be more targeted and localised,” said ING commodity strategists Warren Patterson.
Brent crude futures were last down 0.2% at $41.64 a barrel and U.S. crude futures slipped 0.3% to $39.69.
Gold prices touched a six-week low as the dollar strengthened. Spot gold fell 1.2% to $1,875.7 per ounce.
In bond markets, Italy’s 30-year bond yield fell to a record low as the country’s debt remained supported after local elections reduced the risk of a snap election.
U.S. bonds were steady, with the yield on benchmark 10-year U.S. debt US10YT=RR up less than one basis point at 0.6724%
(Additiona reporting by Tom Westbrook in SINGAPORE; Editing by Tomasz Janowski)
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