Nikko AM’s latest research shows that Abenomics is exceeding its targets and consensus expectations on the road to reform. Prime Minister Shinzo Abe’s ‘Three Arrows’ policy, dubbed by Nikko AM as ‘Super-Abenomics’, is providing a clear boost to Japan’s household finances.
Since Abe’s appointment, asset prices in Japan have surged, leading to rising consumer and business confidence, a key indicator of economic growth.
As a result, more than JPY71 trillion (USD720 billion) of household financial net worth (excluding real estate) has been created in the twelve months to June 2013, leading to a total of JPY1.2 quadrillion (USD12.2 trillion) net financial assets – a record high in Japan.
John F. Vail, chief global strategist at Nikko AM’s Tokyo head office "The ‘Abenomics Wealth Effect’ has started to play a key role in Japan’s economy. When asset prices are rising, consumer confidence clearly rises with it. In our view, Japan’s economy and its tax revenues have been given a clear boost with Abe’s ‘Three Arrows’ and we expect the forthcoming economic and regulatory reforms to provide a further uplift to Japan’s investment markets."
In addition, Nikko AM is monitoring Japan’s inflation numbers closely. Japan’s Core CPI excludes fresh food, while an unofficial measure called ‘Core-Core CPI’ excludes all food and energy.
Nikko AM has adjusted the Core-Core CPI forecast to allow for the VAT hike due in April 2014 (which we believe is not truly durable inflation), to arrive at what we call ‘Triple Core CPI’.
Core-Core CPI will match Triple Core CPI through to March 2014, but we believe it will move close to 2.0% year-on-year thereafter, as the VAT hike will affect nearly all of the components in the Core-Core CPI basket.
As for Triple Core CPI, we expect it to hit 1.0% year-on-year by December 2014, driven mainly by the housing component. While housing costs are difficult to predict, anecdotal evidence suggests that rents are starting to firm in Tokyo and will likely soon do so in other cities.