Abenomics to Fail Without ‘Third Arrow,’ Allianz Global

The policies of Japanese Prime Minister Shinzo Abe and the Bank of Japan will fail to reignite long-term growth in the Asian nation as they don’t address structural flaws in areas such as labor and immigration, Allianz Global Investors’ chief investment officer said.

“The effects of this major monetary policy will wear off, and then we’re going to be back where we are now,” Andreas Utermann said in an interview in Paris. “Anyone investing in Japan now is living on borrowed time.” Allianz Global Investors, a unit of Allianz SE, oversees about $424 billion.

The policies dubbed Abenomics have so far relied on the first two “arrows” of Abe’s plan, namely government spending and BOJ Governor Haruhiko Kuroda’s commitment to achieve 2 percent inflation by increasing money supply. The prime minister has yet to fire his third arrow -- changes to the economic structure of Japan to reduce the fiscal burden, boost employment and attract talent from outside.

“Without structural reforms in a major way, reforms in the pension system and in immigration for example, you’re not going to get there,” Utermann said following a presentation today. “We need a social crisis to trigger major structural changes. There is no crisis in Japan, therefore no urge to reform.”

Abenomics has helped to weaken the yen and boosted exports as the government aims to end 15 years of deflation. The policies have fueled a 65 percent gain in the Topix Index (TPX) since the end of 2011, including a 40 percent advance this year, the best performance among 24 developed-market indices tracked by Bloomberg.

Utermann said investors should continue to favor equities next year.

“It’s risky not to be in risky assets,” the CIO said. “Any weakness in risk assets, our view is that that is a continuing buying opportunity.”

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

To contact the editors responsible for this story: Andrew Rummer at arummer@bloomberg.net

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