Shinzo Abe’s New High-Risk Japanese Economy

A conversation with Scott Foster, Advisor, Triple A Partners Japan; Jonathan Epstein, General Manager and Representative Director, PayPal Japan; and Kimball Edwards, Program Director, US Army Space and Missile Defense Command; hosted by Russ Daggatt, Founding General Partner, Denny Hill Capital

On Abenomics

• Jonathan Epstein: Abe has dramatically increased currency levels, which has boosted the markets and been very popular. (His plan is to double monetary supply within 2 years and reach 2 percent inflation.) A bra company has piggybacked on this with a bra that’s intended to increase your volume 2%. 
  • There are serious structural issues: Japanese debt is now higher than Italy’s. It’s not the same degree of risk because it’s held domestically, but it’s there.
  • Now that Japan is in it, the question is how to get out.
  • Japan’s health care system is a tremendous drain on the overall economy and there’s a huge drain with underemployment. The transpacific partnership is the first step in that.
  • The fact that Japan controls its own currency allows Abe to control stimulus. It’s unlikely the Japanese will leave the country, so he has more wiggle room for stimulus policies.
  • One worry is Abe’s nationalist alter-ego will come to the floor and he’ll press more aggressively with the U.S. and China, which would likely be a lose-lose altercation

• Scott Foster: Many say Abenomics is high risk, but not doing anything is a much higher risk. “I don’t think it’s just prime minister and his friends. I think it’s the democratic party as a whole and the business community.” There won’t be revolving prime ministers for a while.
  • “By basically copying what Mr. Bernanke’s done here, they managed to turn a vicious cycle into a virtuous circle.” We’ve got a virtuous circle started, the point is to keep it going.
  • We’re in danger of a currency overload.
  • Japanese are importing a LOT of food, fuel, etc and those prices are going up. “It’s quite possible that within a few years the problem is not deflation, but inflation.”
  • Farmers need to develop some economies of scale and figure out a new business model. They’re perfectly aware of this. Farm lobby is so strong that without TPP, nothing would happen.
  • They know that they can’t raise stimulus tax unless people feel richer, so they’re already jawboning for higher wages.
  • After you do all the stimulus, you have to raise tax revenues and draw down the debt.
  • As long as he doesn’t re-shuffle his cabinet, he should be OK