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It looks as if Prime Minister Shinzo Abe is fighting for his political endgame, but his pet policy Abenomics is coming under increasing pressure on a number of fronts.

First, history is against Abe. Japan’s current business cycle began in November 2012, coinciding with Abe’s appointment as prime minister on 26 December that year. But although the economy is reasonably robust for now, after 45 months, the current cycle could end at any time (Japanese business cycles since World War II have typically lasted between 40 and 60 months). This is bad news for Abe because no prime ministers except Shigeru Yoshida and Eisaku Sato survived in office for more than one business cycle.

According to the Bank of Japan’s Outlook for Economic Activity and Prices in July 2017, the Japanese economy will continue growing in 2017–18. After this, growth is expected to drop in 2019 due to anticipated decline in infrastructure investment for the 2020 Tokyo Olympics. History shows that the pattern of business cycles continues regardless of government attempts to smooth out fluctuations through a mix of monetary and fiscal policy.

Second, Japan is facing pressure to drop its monetary easing policies. The monetary policy stances of the US Federal Reserve, the Bank of England, and the European Central Bank indicate a move away from excessive monetary easing, but under the leadership of Governor Haruhiko Kuroda, it seems likely that the Bank of Japan will continue to implement quantitative and qualitative monetary easing (QQE) until the 2 per cent inflation target is achieved. Read more

It looks as if Prime Minister Shinzo Abe is fighting for his political endgame, but his pet policy Abenomics is coming under increasing pressure on a number of fronts.

First, history is against Abe. Japan’s current business cycle began in November 2012, coinciding with Abe’s appointment as prime minister on 26 December that year. But although the economy is reasonably robust for now, after 45 months, the current cycle could end at any time (Japanese business cycles since World War II have typically lasted between 40 and 60 months). This is bad news for Abe because no prime ministers except Shigeru Yoshida and Eisaku Sato survived in office for more than one business cycle.

According to the Bank of Japan’s Outlook for Economic Activity and Prices in July 2017, the Japanese economy will continue growing in 2017–18. After this, growth is expected to drop in 2019 due to anticipated decline in infrastructure investment for the 2020 Tokyo Olympics. History shows that the pattern of business cycles continues regardless of government attempts to smooth out fluctuations through a mix of monetary and fiscal policy.

Second, Japan is facing pressure to drop its monetary easing policies. The monetary policy stances of the US Federal Reserve, the Bank of England, and the European Central Bank indicate a move away from excessive monetary easing, but under the leadership of Governor Haruhiko Kuroda, it seems likely that the Bank of Japan will continue to implement quantitative and qualitative monetary easing (QQE) until the 2 per cent inflation target is achieved.