Reputation Matters

Rather than discussing the agenda set by UK Prime Minister, David Cameron, which are trade, tax and transparency, Japanese media preferred to show how Abenomics was liked or disliked by other leaders. Group of Eight leaders meeting delivered the declaration for world economy, which praised the economy policy of Prime Minister, Shinzo Abe, as expectable. However, there came up concerns about fiscal situation of Japan from some leaders. Under the expectation on Japan’s role in world economy, Abe has to be more responsible for rebuilding fiscal structure.

The message of G8 was clear. “Although growth of Japan economy is supported by short-term fiscal stimulation, bold monetary policy and growth strategy, it needs to determine reliable mid-term fiscal plan,” the declaration for world economy described about Japan. Pro-Abe media emphasized that G8 had approved Abenomics, while some critical media found the significance of leaders’ claims about Japan’s fiscal unhealthiness.

At the meeting, Abe tried to sell his economic policy for earning good reputation on his handlings of Japan economy. “I will create an economy contributing to the world. Although unstable domestic politics has been affecting Japanese economy, I am going to stabilize it,” told Abe in a leaders meeting. On raising consumption tax rate, he showed his intention to do it in an appropriate manner, considering the indicators of latest economy. “I want to make your policy a model of revitalizing economy. Would you come to Italy and make a speech?” asked Italian Prime Minister, Enrico Letta.

Some leaders were, however, skeptical about the implementation. “How do you think about the exit strategy? Isn’t there a concern of competition in foreign exchange?” asked German Chancellor, Angela Merkel. She also asked him how to reduce a huge amount of fiscal debt in a bilateral meeting with Abe. It is fair to say that her concern represented most Japanese citizens’ interest.

Abe’s prescription so far is limited to an announcement of having mid-term fiscal plan in this summer. On the other hand, he promotes fiscal stimulation policy further accumulating governmental debt. This makes the greatest contradiction in his economic policy. People are not so worried about the situation of economy, because the consequence of his policy still looks like moderate in markets. But, Abe has nothing to deal with possible sudden crisis in bond market. Optimism heavily relied on volatile move in markets is inevitably vulnerable.