Prime Minister Shinzo Abe's economic policies are based on flawed understanding of the country's problems. Corporate profits for the year to March 2014 will be "extremely strong" given a weaker yen and increases in government spending but Shinzo Abe's policies, which are focused on spurring inflation, are founded on "poor economic analysis" that sees deflation as a problem when the real issue is a glut of savings at companies.
This is what economist Andrew Smithers, who chairs London-based advisory firm Smithers & Co. told Bloomberg News before the rise in the sales tax.
Andrew Smithers, who first visited Japan in 1968, and lived here from 1986 to 1989, observes that Japan's fiscal deficit and government debt mean that inflation could create a bond market crisis. Japan's Government Pension Investment Fund, the world's No. 1 manager of retirement savings, reduced its holdings of domestic bonds for that reason.
Andrew Smithers is in Japan to promote his new book "The Road to Recovery: How and Why Economic Policy Must Change". The last financial crisis, like those which followed the 1929 crash in the US and the 1989 crash in Japan, was caused by excess debt, with the trigger provided by falling real asset prices (shares and property). In his book, Andrew Smithers explores key practical issues to prevent a repetition of such a crisis.
Any fan of Abenomics should come and listen to Andrew Smithers. Any skeptic even more.
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