China Daily (Canada) - - COMMENT -


If “Abe­nomics” fails to fuel Ja­pan’s econ­omy, then the coun­try could face “Abeged­don” and end up with a po­ten­tial Ar­maged­don story, ac­cord­ing to UBS.

In an Abeged­don sce­nario, the ag­gres­sive mone­tary pol­icy and fis­cal ex­pan­sion pro­moted by Abe would be push­ing up Ja­pan’s debt to dan­ger­ous lev­els. In­vestors would be­come in­creas­ingly con­cerned about the sus­tain­abil­ity of the Ja­panese debt, as Ja­pan’s debt to GDP ra­tio would rise to more than 300 per­cent from the cur­rent 226 per­cent, and the 10-year gov­ern­ment bond yield could ap­proach 5 per­cent from 0.86 per­cent.

Af­ter the debt ex­pan­sion, Ja­pan’s econ­omy would even­tu­ally crash if there were no fol­low-up sta­bi­liza­tion pol­icy or mea­sures to help con­trol the sit­u­a­tion. Once that hap­pened, it would se­verely dam­age the re­gional fi­nan­cial sys­tem and re­gional bank cap­i­tal would be sig­nif­i­cantly im­paired.

Given the rel­a­tively low risk of stagfla­tion, a stam­pede out of gov­ern­ment bonds may not be likely in the short term. If there were in­deed any tem­po­rary sell-off, it would in­evitably be curbed by Ja­pan’s cen­tral bank’s sta­bi­liza­tion mea­sures. There­fore, it will still take years to fully judge whether Abe’s eco­nomic pol­icy is a suc­cess or fail­ure.

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