Abenomics May Losing Steam As Trade Dispute Escalates

Forex News

A disappointing reading on Japan’s economy, which suddenly seems to be faltering after two years of steady growth, raises the possibility that it is peaking just as trade friction with the United States escalates. Economists believe Japan will avert a recession, as they see the first-quarter slump as a soft patch caused by temporary factors like bad weather and weak stock markets. But looming uncertainties suggest that Prime Minister Shinzo Abe’s program to reflate the economy, known as “Abenomics,” is losing momentum and could force policymakers to ponder additional measures to keep the recovery going.

Although gloomier economic prospects could keep the central bank from whittling down stimulus, the threshold for further monetary easing is high. But the outlook for a softer economy throws into doubt his commitment to balance the budget - a pledge already watered down after he pushed the target date back five years to 2025.

Japan’s PM has already voiced readiness to boost spending to offset the pain from the planned sales tax increase, mostly through tax breaks and incentives for car and home purchases. Some analysts say the government could compile a supplementary budget, set up on top of annual budget spending to handle unexpected expenditures, worth up to 3 trillion yen ($27 billion) this year. But spending could also rise sharply if growth starts to peter out earlier than expected.

Earlier, the World Bank predicted Japan's economic growth at 1.0% this year, down 0.3% from its estimate in January, partly due to higher-than-expected oil prices. Growth in the Japanese economy is expected to slow to 0.8% in 2019, unchanged from the January estimate, and 0.5% in 2020.