Abenomics Must Avoid Becoming Bubblenomics

Move over Mr. Yen, you have officially been eclipsed by Shinzo Abe. This will come as devastating news to Eisuke Sakakibara, the former Ministry of Finance official who revels in the media attention he receives for his ability to influence exchange rates. Hence the "Mr. Yen" moniker.

Without spending a single yen intervening, Prime Minister Abe weakened the currency by 13 percent in just three months and delighted executives around the nation. With savvy public relations and bit of unexpected panache, Abe is keeping the world of currency trading on its toes and grabbing Sakakibara's title.

Yet now comes the hard part. As Abe makes the rounds in Washington today, where he will meet with U.S. President Barack Obama, two big risks should be very much on his mind. One, the odds of creating a giant asset bubble. Two, imagining how global investors will react if Japan disappoints them -- again.

At issue is Abe failing to match fiscal and monetary pump-priming with structural reforms-- deregulation, increased productivity, greater entrepreneurship -- to make a recovery self-sustaining. This mismatch has plagued Japan for 20 years.

"We believe an expansion in monetary easing and fiscal policy without any growth initiatives would only give rise to an unsustainable asset bubble, turning Abenomics into Abe-Asset-Bubble-nomics," says Tetsufumi Yamakawa, head of Japan research at Barclays Securities Japan Inc. in Tokyo.

The other issue involves Charlie Brown, Lucy and the football. Charles Schulz's "Peanuts" cartoon has more to do with investors' relationship with Japan than meets the eye. Time and time again, Lucy convinces Charlie she'll hold the ball for him to kick only to yank it away at the last second. Every time, he lands flat on his back, pondering his gullibility. Bullishness on Japan often seems that way.

Every few years, or every few prime ministers, investors rush back to Japan sensing that, this time, things really are different. They queue up to the kick the ball and make some profits, only to see officials in Tokyo yank it away. Is this pattern playing out anew? Only time will tell. But if Japan disappoints investors once again, it could be a long, long time before they return.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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    Willie Pesek at wpesek@bloomberg.net

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