On Dec. 16, Japan elected a new government with Liberal Democratic Party (LDP) head Shinzo Abe becoming the next Prime Minister. Abe had campaigned on a platform of “unlimited” monetary easing from the Bank of Japan and a dramatic increase in public works spending.
Japan is going through its fourth recession since 2000 and many are wondering if it will be any different from when Abe was Prime Minister before from September 2006 until September 2007. This go-round, though, Abe’s LDP with a coalition partner controls a two-thirds majority in the lower house of the Diet.
Currently, Japan’s government has a budget deficit of 10 percent of its GDP, with its gross debt of 235 percent of GDP, up from just 68 percent in 1990.
The result on the yen was already anticipated with it falling against the U.S. dollar about 5 percent since mid-November. It is now the most shorted currency for the first time in three years, surpassing the Euro. It has now fallen to its lowest level since April 2011.
A weaker yen is good for Japanese exporters, making their goods cheaper and more competitive, but for Hawaii it could be a drop in daily spending from our Japanese tourists. It also makes the cost of airfare to Hawaii more expensive. It remains to be seen to what extent.
Another policy that Abe ran on was to become more aggressive with China regarding the ownership of the Japanese administered Senkaku Islands in the East China Sea. China had already sanctioned and encouraged the boycott of Japanese goods last September, which had a material effect on companies such as Toyota, Honda, Nissan and Panasonic. There was also a 33 percent drop of Chinese tourists to Japan, adding another hit to the already struggling economy.
Investors around the world will closely watch Abe’s moves as it is the third largest economy, but, even more so, movements of the yen will be followed closely by Hawaii’s tourism industry.