Abenomics and its history
Shinzo Abe became the Prime Minster of Japan in December 2012 and within weeks, he launched what is known as Abenomics. This “three-arrow” economic program is a combination of monetary easing, fiscal expansion, and structural reform. You can read more about the rationale for Abenomics in Why Abenomics?
Prior to Abenomics, Japan had been implementing CME (Comprehensive Monetary Easing), a policy that came into effect in October 2010. This policy expanded the Bank of Japan’s (or BoJ) asset purchase program to include—apart from government bonds—corporate bonds and commercial paper, ETFs, and REITs (real estate investment trusts). After the massive 9.0 magnitude earthquake and tsunami struck Japan in 2011, the BoJ doubled the asset purchase program to 10 trillion yen. The graph below illustrates the level and the pace at which Japan’s monetary base has risen.
Ratification of Abenomics
Surprising everyone, Shinzo Abe dissolved the Japanese parliament in November 2014 and called for fresh elections in December 2014. The primary reason for this action was to seek ratification of his three-pronged policy for economic reform from the Japanese people. The results of that election were clearly in his favor.
After this ratification, there were hopes that Abenomics would be put in overdrive. However, Abe faced considerable opposition for structural reforms like the Trans-Pacific Partnership (or TPP). In that push for structural reforms, it seems as if the focus on the other two arrows was lost. The slowing inflation and economic growth are demanding more focus on the other two arrows of Abenomics.
In this series, we will look at how economic releases have impacted Japan-focused mutual funds like the T. Rowe Price Japan Fund (PRJPX), the Fidelity Advisor Japan Fund (FPJAX), the Nuveen Tradewinds Japan (NTJAX), and the Matthews Japan Fund (MJFOX).
NTJAX and MJFOX had the lowest negative Sharpe Ratios for the three-month period ended August 21, at -0.7 each. The T. Rowe Price Japan Fund had the worst Sharpe Ratio reading of -1.3.
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