Diana Choyleva, head of macroeconomic research at Lombard Street Research, says Yes.
The wheels haven’t fallen off Abenomics, but Japan is careering towards a dangerous mix of inflation and no growth. The last thing it needs is more QE, which will debase the yen and feed directly into inflation. Deflation in Japan isn’t the disease but a symptom of its structural malaise. Printing more money has little chance of generating real growth without reforms, which aren’t even on the agenda. Japan’s structural weaknesses are excessive corporate savings, an obsolete export machine, and a dysfunctional labour market. The Bank of Japan is now locked in perma-QE. The plunge in the yen will make it difficult to avoid currency wars. The eventual upshot could be a new financial crisis.
Tom Stevenson, investment director at Fidelity Personal Investing, says No.
Turning the Japanese economy around after 20 years of stagnation was never going to be easy – or quick. With inflation falling back to half the government’s 2 per cent target, the authorities have sensibly gone for co-ordinated shock and awe. The need to throw money at the stock market and crank up the printing presses reflects the strength of the sales tax headwind. It’s a sign that monetary policy needs to do the heavy lifting in the face of an ongoing fiscal squeeze. Abenomics is not broken, but it has barely started Japan’s long journey back to regional importance. That will require Tokyo to rediscover its economic mojo and get serious about corporate reform.