BELFAST, Northern Ireland -- Japan got a rare chance to grab the spotlight during a June 17 G8 session on the global economy, as leaders paid close attention to Prime Minister Shinzo Abe's economic policy mix -- dubbed "Abenomics" -- aimed at ending deflation and reviving the Japanese economy.

"Japan's growth will be supported by its near-term fiscal stimulus, bold monetary policy and recently announced strategy for promoting private investment," a G8 communique stated, giving some backing to Abenomics. But on Japan's bulging public debts -- the worst among the eight nations -- the communique added, "However, it will need to address the challenge of defining a credible medium-term fiscal plan." Furthermore, some G8 leaders warned Japan against allowing "Abenomics" to fall into growth policies dependent on monetary easing and a weak yen.

During the June 17 session, British Prime Minister David Cameron, chair of the G8 summit, asked Abe to talk about Japan's economic policy. Abe, the second speaker at the session, said, "We will promote the integration of Japan's economy into the global economy by helping Japanese companies start their overseas operations and promoting foreign investment in Japan, among other steps." Abe then stressed, "We will ensure that Japan's economic growth contributes to the global economy."

G8 leaders praised Abenomics, with Italian Prime Minister Enrico Letta saying that the policy mix is a good example of economic revival. Meanwhile, some G8 leaders pointed out that the Abe government's policy of focusing on growth could potentially set back efforts to rehabilitate government finances. Noting the fact that the Japanese and U.S. economies have become increasingly dependent on monetary easing, German Chancellor Angela Merkel and other G8 leaders expressed concerns about how Japan would develop a monetary easing exit strategy and about the possibility of a currency war.

When a central bank moves to end an easy monetary policy, it can throw financial markets into confusion -- just like Japanese and U.S. share prices plunged, albeit temporarily, from late May on fears of the U.S. Federal Reserve phasing out quantitative monetary easing. In addition, emerging countries have become increasingly unhappy with the appreciation of their own currencies -- a knock-on effect of monetary easing in Japan, the U.S. and European countries -- which could lead to the slowdown of their economies. The Chinese Ministry of Commerce, for instance, has said that currencies of some countries were being forced to rise sharply.

If Japan's economy continues to grow on monetary easing and a weaker yen alone without setting out a path for real economic revival accompanied by structural reform and fiscal rehabilitation, the G8's upbeat appraisal of "Abenomics" will soon turn into disappointment.

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This news was published on June 19, 2013.

Source: http://mainichi.jp/english/english/newsselect/news/20130619p2a00m0na014000c.html