How Should "Abenomics" Be Understood?(Jan 2013)

◆We have provisionally revised our economic outlook owing to such factors as improving sentiment following the formation of the Abe administration: In light of the inauguration of the Abe administration on 26 December 2012, we have provisionally revised our economic outlook upward. We now forecast real GDP growth of +1.3% y/y for FY12 (previous forecast: +1.0%) and +2.2% for FY13 (+1.1%). As our first outlook for FY14, we forecast growth of +0.3%. We expect the economy to receive a boost from a large-scale supplementary budget for FY12 as well as aggressive monetary easing by the Bank of Japan.

◆How should “Abenomics” be understood?: In this report, we examine the economic policies of the new Abe administration (so-called Abenomics). We believe that Abenomics has the potential of sparking the revival of Japan’s economy. At the same time, we believe that it must address two paramount issues: (1) the implementation of policies to improve the foundations of Japan’s economy, such as deregulation and participation in the Trans-Pacific Strategic Economic Partnership Agreement, and (2) selective investment in public works projects with the view of maintaining fiscal discipline.