Although many have cast doubts over Shinzo Abes reform plan, there are emerging signs that aggressive monetary reflation is having a positive impact on the Japanese economy. Money and loan growth has reaccelerated, consumer confidence has risen and the Tankan business survey has also spiked.
Most importantly, financial markets seem to believe that the authorities will achieve their inflation target. For the first time in many years, inflation expectations in Japan have risen above 1%. In short, the Bank of Japan (BoJ) so far appears able to manage a revival in consumer and business confidence via a combination of large-scale QE program and a sharp yen devaluation. We see no reason why these positive trends will come to an abrupt end, so long as the BoJ maintains its policy (the BoJ meets later this week stay tuned).