Given the inability of Abenomics to generate a feel-good factor, it is no surprise that the deleveraging instinct remains intact among Japanese corporates and households. To conclude that this is a temporary phenomenon, there would need to be a significant improvement in leading sentiment indices. Unfortunately, consumer confidence continues to tread water, while the large and small company indices are both depressed.
The onus is on policymakers to find the tools to succeed, and in so doing convince a sceptical public that the future will be brighter than the past. On the other hand, if the role of monetary policy is diminished the policy mix is unlikely to prove as favourable to risk assets as that seen in recent years.
Govinda Finn is senior analyst in the global strategy team at Standard Life Investments
