Evans Chamberlain Asset Management - Japan's Reliance on Monetary Easing Increases

Evans Chamberlain Asset Management reports Japan's economy continues to improve but dependence on stimulus grows

With weak inflation and increased government spending, Evans Chamberlain Asset Management economists believe that Japan’s government is becoming increasingly reliant on the Bank of Japan ’s substantial monetary easing policy implemented by Governor Haruhiko Kuroda.

The government's selection of Kuroda to serve another five-year term indicates that his monetary easing campaign could remain in effect for the foreseeable future. The government also selected Masazumi Wakatabe and Masayoshi Amamiya to supplant two outgoing deputy governors next month.

Evans Chamberlain Asset Management economists say the Bank of Japan now holds approximately 40 percent of all Japanese government bonds. This share is 3.4 times more than it was five years ago before the central bank began its controversial quantitative easing program. Under the direction of Kuroda, the BoJ has taken drastic measures to reinvigorate Japan’s economy including the introduction of negative interest rates.

Evans Chamberlain Asset Management economists say Kuroda’s policies have significantly improved macroeconomic conditions. The country’s rate of unemployment has fallen to 2.8 percent from 4.3 percent bringing the Japanese population to full employment status. While international growth has also been a contributing factor, government stimulus is undeniably the biggest reason for Japan’s second-longest run of economic recovery in seven decades.

However, Evans Chamberlain Asset Management economists say the government and the Liberal Democratic Party have become more dependent on stimulus programs. Shinzo Abe has vowed to lift the country out of deflation, delaying a consumption tax increase twice and increasing government expenditure. The country’s national debt has increased by $1.5 trillion since 2012. Tokyo’s budget has been increased multiple times without paying attention to reforms on a social security system that is under growing pressure from an aging population.

Source: Evans Chamberlain Asset Management