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Analysts to test strength of Japan’s ‘Abenomics’

Japanese Prime Minister Shinzo Abe’s economic platform combines fiscal spending with quantitative easing and structural reforms.

Toru Hanai/Reuters

This is the week when many data gatherers in the developed world close their spreadsheets for a badly needed break. The notable exception is Japan. Apart from the Emperor's Birthday holiday on Monday, government statisticians will be hard at work cranking out the latest numbers on everything from industrial production, machine tool orders and labour earnings to retail sales, housing starts and inflation.

Analysts who keep close tabs on the world's third-largest economy will focus intently on the industrial output figures, wage earnings and the direction of the consumer price index for fresh clues about whether "Abenomics," the platform that brought conservative Prime Minister Shinzo Abe to power a year ago and sparked a strong stock-market revival, continues to underpin Japan's recovery prospects.

Some of the key economic indicators have been on the upswing in recent months, sparking optimism that Abenomics might indeed succeed where so many previous Japanese assaults on stagnation and long bouts of deflation have failed. Industrial production, for example, climbed in both September and October from levels a year earlier. As recently as August, it was in negative territory. "If November can clock in with a good number, too, it would translate into a pretty decent quarter," said Benjamin Reitzes, senior economist at BMO Nesbitt Burns.

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Abenomics combines fiscal spending with aggressive quantitative easing and structural reforms intended to deregulate key domestic sectors. The idea is to restore consumer and business confidence, boost spending and encourage companies to invest in production. But to show he has not abandoned fiscal prudence altogether, Mr. Abe has also pushed through a sales tax hike (to 8 per cent from 5 per cent) that could cause the opposite effect on consumption when it takes effect in April.

For now, however, retail spending is expected to show a healthy gain when the November numbers are released on Thursday. Analysts say that trend could continue into the first quarter, as consumers move up planned purchases ahead of the tax hike.

As for inflation, the annual rate rose to 0.9 per cent in October, prompting Bank of Japan Governor Haruhiko Kuroda to declare that the central bank was halfway to its target of a stable 2 per cent. But much of the rise stemmed from the impact of a depreciating yen on energy and other imports. The monetary policy committee's median forecast is that core inflation, excluding energy and food, won't come close to the target until fiscal 2015.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More

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