Abenomics: Forecast and effects on Korean & Global economy

Click "CC" for Scripts Subscribe to arirang! http://www.youtube.com/subscription_center?add_user=arirangnews 아베노믹스: 여파와 앞으로의 전망은? Abe-nomics . Japanese Prime Minister Abe Shinzo's aggressive monetary policies -- mainly aimed at boosting its economy through massive quantitative easing. But Tokyo's attempts -- including the massive issuance of sovereign bonds. is not only affecting the foreign exchange market with the depreciating yen. It's also shadowing Korea's financial markets by dragging down Seoul's outbound shipments. Joining us now is Arirang News' Song Ji-sun who'll tell us more about what we can expect in the coming months. and what is expected if Abenomics ends up being a failure, or a success. So Ji-sun,. let us begin by talking about what Abenomics is. Good evening. It's been only six months since the so-called Abenomics policy kicked in December last year -- after Japanese Prime Minister Abe Shinzo took office. He set out a main goal of reviving the stagnant Japanese economy. and the policy can be broken down into three parts. Kicking off the Abenomics paradigm. was massive quantitative easing that depreciated the Japanese yen. and gave the benchmark stock exchange Nikkei a boost in the first couple of months. Tokyo also plans to expand its government expenditure. and in the long term -- conduct government reforms -- mainly focused on deregulation, taxation among others. The restructuring plan is scheduled to be released before the end of this month. But the downside of its massive bond issuance has already begun to surface. This is why Japan's quantitative easing could pose such a high risk. Japan procures more than half of its government budget through sovereign bonds. and the rest through tax revenues. "More than 95-percent of Japan's national bonds are owned by local investors, and it's easy for Tokyo to raise money through bonds. But eventually, it will be tough for Tokyo to pay back the principal. with the long-term bond interest rate rising to over 1-percent these days. Note that Japan's benchmark interest rate hovers slightly above the 0-percent mark. When bond-buyers sell it back, the Japanese bond will lose its attractiveness, putting the government in a difficult spot." And Korea has been hit by this Abenomics policy in its exports. Korea's major exporting companies have seen continuous drops in their sales overseas. while Japanese exporters saw a dramatic rise since the third quarter last year -- when the yen started to shed its value. For Korea, outbound shipments -- not just to Tokyo, but to other destinations around the world have also seen a cut back in orders. as many of Korea's flagship export items are in direct competition with Japanese counterparts. "The low-yen, higher won trend kicked in last November, and it usually takes 7 to 8 months for that to be reflected to export shipments. Korea's major exporting companies will continue to suffer from the weak yen. in the second half -- and in the long run, as well." But Ji-sun, how do we know if Abenomics is working? How do you define the success or failure of this policy? To answer your question, it's not clear cut. If we define success as Tokyo reviving its economy as planned. it may not be a good signal for Korea -- as Japanese exporters will regain competitiveness and compete head on with Korean exporters in the global market. But on a more of a macro-point of view, the global economy will be given a boost -- given that the Japanese economy is the third largest in the world. If Abenomics fails to achieve its goals. the market consensus is that Tokyo will slump back into a period of no growth very much like the decades of depression that continued before Abenomics took effect. This of course means years of deflation will return. and the market will lose its credit on the Japanese government with higher default risks. Experts say the key to success -- will be the reform and restructuring of the government . and how well Tokyo executes it. And what are sentiments from other countries regarding this policy . are they just as concerned some in Korea are? Last Friday, the International Monetary Fund warned there are "considerable downside risks" if Tokyo doesn't slash back its huge national debt. The IMF praised Abe and the Bank of Japan for being on the right track in their bid to reverse years of falling prices. but noted that Tokyo must deliver on its pledges for more reforms. Visit us on Homepage http://www.arirang.co.kr Like us on Facebook http://www.facebook.com/arirangtv Follow us on Twitter https://twitter.com/arirangworld