Is Abenomics Working Or Is It Failing?

Abenomics are the economic proposals set forth by Shinzo Abe, Japan’s current prime minister who was elected late last year. It attacks structural issues, has some fiscal measures, but mainly it is used to describe the aggressive monetary measures adopted by the Bank of Japan. There was a bunch of hoopla over it earlier in the year, especially when bond yields “spiked” as the yen’s value fell.

As bond yields were spiking people were declaring that this was Abenomics at work (higher yields meant higher hopes of inflation/economic recovery). At the same time, there were some people who were saying that this is the bond market “waking up”, that this was the market realizing the massive debt load Japan had. In case you don’t know, Japan’s debt:GDP ratio is around 200%. Although the debt load is high, Japan has not had anything near a debt crisis (in fact, its had a “debt-uncrisis” as yields have stayed remarkably low). People have been burned (and continue to be burned) trying to short Japanese Government Bonds, also known as JGBs.

Personally, I didn’t think much of Abenomics. I didn’t think it would cause a magical strong economy recovery (it hasn’t, although there has been some positive developments over the last year) and I didn’t think it would cause a bond crisis. The reason why JGB yields “spiked” earlier this year was because they had sunken to abysmal┬álevels (the 10 year bond was yielding around 1/2 a percent!). That’s why you saw a “~80% spike” in bond yields. When you have such a low number, the percentage moves tend to be really high. But it was never something people should have gone wild about.

So without further ado, here are bond yields back to “normal” levels. Maybe in the long term the bond market explodes (doubt it) or Abenomics turns Japan into the economic growing powerhouse it was over 20-30 years ago (doubt it). But for now, that bond yield spike was pretty much a dud.

(Quick update: Some people might say this IS Abenomics working)

10 year JGB yield Chart

JGB Yield
















The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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