IMF Official: Stock Market Jitters Show Concerns over Abenomics
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IMF Official: Stock Market Jitters Show Concerns over Abenomics

Recent volatility in Japan’s stock market reflects concerns among global investors, not just about the direction of the global economy, but also about whether Prime Minister Shinzo Abe will be able to follow through with the longer-term reforms he has promised under his economic program, a top IMF official says.

Japan’s stock market has been seen as something of a barometer for how people view the “Abenomics” program. Its 57% rise last year was hailed as a sign of success, but a selloff since the start of the year shows there may be some doubts emerging , says Jerry Schiff, deputy head of Asia-Pacific for the International Monetary Fund.

The stock market is “a useful and important indicator to pay close attention to,” he said at a media briefing Wednesday, adding that current Tokyo share prices reflect investor belief that “something important has changed in Japan.”

He noted that such positive expectations have already generated dividends for Mr. Abe. People feel wealthier and are tending to consume more while companies are tending to invest more.

“It can definitely have real effects,” he said.

While he notes the stock market should not be seen as the only benchmark, saying it “isn’t a sufficient indicator of the health of a country’s economy,” he says it does show something about investor views toward Japan.

Ultimately, though, the early hopes for Abenomics need to be backed up by reality, he said.

“That has to be followed up by continuing to work on the arrows that have not been fully implemented,” Mr. Schiff said.

Mr. Abe has characterized his economic program as having three “arrows.” Fiscal stimulus and aggressive monetary policy comprise the first two arrows, while structural reforms make up the third arrow of the program.

The IMF has been calling for fundamental reforms in Japan, including fiscal belt-tightening, greater female labor participation, relaxation of immigration rules, and more market opening to foreign imports.

Confidence in Abenomics has seen some setbacks in recent months with a weak yen providing only a modest boost to exports, leaving trade deficits at their highest levels seen in at least 34 years.

But Mr. Schiff said that progress has been made, as deflation has turned into broad-based price gains, while the labor market has tightened.

He also expressed optimism about the sluggish export sector.

“We still think exports will respond (to the yen weakness), and we are anticipating some pretty decent growth in exports this year,” he said.

But other parts of Abenomics need to move forward, he argued.

“It cannot just be a monetary policy effort,” he said.



This news was published on February 13, 2014.