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If we escape deflation, what next?
In 2013, the Japanese economy boomed under Abenomics. The economy is certainly recovering, and it is undeniable that Abenomics has had a number of positive effects: export competitiveness has improved under a weaker yen; consumer confidence is up along with stock prices; and public works spending has risen as part of emergency economic stimulus measures. Even without the spectacular introduction of Abenomics, however, the economy would have rallied against the backdrop of a recovering global economy. In 2014, growth is likely to continue, albeit at a slower pace than in 2013. While there will be a negative impact from the consumption tax hike, and policy measures such as increased government spending are set to expire, exports should continue to grow as the global economy recovers and capital spending improves.
The key question in 2014 will not be “can we escape deflation?” Instead, it will be “now that we have escaped deflation, what next?” With the end of deflation, its positive impact, namely, support of real personal consumption, will disappear. We should be aware that the downside of an end to deflation is that personal consumption may slow, which is a known effect of inflation. Nonetheless, that the supply－demand gap is shrinking is a positive development for the economy. If the excess supply of capital or labor disappears and shortfalls start to appear, it will be natural to experience increased capital expenditures and employment growth. If this does not happen, it will be because managers are not optimistic about the future and thus do not seek expansion. Even so, the road ahead will not open up if we just wait for the government to do something. The key to making 2014 a year of new beginnings is to wake from the dream of Abenomics and forge our own path to growth with our own hands.