Japanese businessmen are shifting their production site to other Asian countries following a shortage of power and broken supply chains after the Tsunami and the resultant Fukushima nuclear disaster in March 2011.
Heizo Takenaka,economic adviser to Japans Prime Minister Shinzo Abe said on Monday that FDI from Japan will continue to increase. Addressing a gathering in Mumbai at the IISS Oberoi Lecture on Monday Takenaka spoke about the economic reforms initiated by the Prime Minister Shinzo Abe,popularly known as Abenomics. He said that the PM is focussing on three policies and simultaneous implementation of the policies.
While the first policy is to have a decisive monetary expansion to counter inflation,the second policy is to have a flexible fiscal policy which calls for a fiscal expansion in the short run and a fiscal consolidation in the medium term.
Takenaka said the third policy or the third element of Abenomics is a policy package to strengthen the power of economic growth.
Although the idea to conduct three policies active monetary easing,flexible fiscal policy and ambitious growth strategy is theoretically correct,there are some uncertain factors,he said.
Takenaka said that in order to realise the first policy Abe has concluded an agreement with the Bank of Japan where 2 per cent inflation targetting is also included. He said that since mid-90s Japan has been suffering from very persistent deflation and deflation is the primary cause of economic stagnation of Japan.
The first arrow (policy) was relatively smoothly released by prime minister Abe and the stock markets and foreign exchange market reacted very positively to Abes decision, said Takenaka. He further added that a part of the second policy has also been released while the third arrow is still in discussion.
Takenaka said that Japan and many countries in the Eurozone need a new type of economic reform with broad economic policy under a strong leadership.
Abenomics depreciated Yen dramatically and Yen depreciated against US dollar by about 15 per cent in the past 3 months. This depreciation while benefited exporters,it had a negative impact on foreign competitors, said Takenaka.