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'Abenomics' faces challenges as TSE dips below previous yr for 1st time in 7 yrs

Former Japan national football team manager Akira Nishino rings the bell at the Tokyo Stock Exchange in Tokyo's Chuo Ward on Dec. 28, 2018, the last trading day of the year. (Mainichi/Toshiki Miyama)

TOKYO -- The final trading day of the year at the Tokyo Stock Exchange (TSE) Dec. 28 ended with the Nikkei average dipping below that of the previous year for the first time in seven years. With the market enveloped by fears that the growth of the world economy is headed to a halt, the year 2019 looks like it will be a challenging one for the administration of Prime Minister Shinzo Abe, which has used high stock prices as the driving force behind its "Abenomics" policy mix.

The closing Nikkei stock average of 20014.77 appeared on the electronic ticker display at the TSE at 3 p.m. on Dec. 28. Immediately, voices of relief, that at least the average was maintained at over 20,000 yen, were heard from the approximately 610 people who were present.

"It was a year filled with flash point after flash point, such as the trade dispute between the U.S. and China, the situation with Saudi Arabia, and Brexit," Japan Exchange Group CEO Akira Kiyota says as he looks back on the year.

For the last six years, the stock market has maintained a bullish trend despite requiring some temporary tweaking. The second Abe administration, which launched in December 2012 while upholding the goal of breaking away from deflation, promoted Abenomics, which entailed the "three arrows" of bold monetary policy, fiscal stimulus and growth strategy.

On Oct. 2 of this year, the Nikkei average closed at 24270.62 -- the highest since Japan's "bubble" economy burst in the early 1990s, and 2.4 times the figure when the second Abe administration was inaugurated.

However, the world economy had begun to show signs of change this spring. The administration of U.S. President Donald Trump imposed additional tariffs on Chinese imports in March, aggravating the already intense trade conflict. The impacts of the Federal Reserve Board's interest-rate hike became even more apparent as it entered its third year. The outflow of funds from newly emerging economies accelerated, and China's economic slowdown became clear from the summer onward.

Beginning in October, market sentiment took a turn for the worse. Anxiety levels rose as the U.S. toughened its hard-line stance toward China, and stock prices tumbled. In December, tensions between President Trump and Congress intensified, and a slate of resignations by top government officials exposed the instability of the administration. In response to the sudden plunge at the New York Stock Exchange of the Dow Jones Industrial Average of 30 market-leading companies, the Nikkei average dropped by at least 1,000 yen on Christmas Day, dipping below 20,000 yen for the first time in approximately 15 months.

Prime Minister Abe has tried to keep his administration afloat citing the rise of stock prices as an effect of Abenomics. But the drop of the Nikkei stock average below that of the previous year for the first time in seven years is likely to cast a shadow on his administration.

"Thinking from a corporate performance perspective, a dip below 20,000 yen is clearly abnormal, so we'll see a recovery," Nomura Holdings Group CEO Koji Nagai predicts. But according to economists and many other observers, it is possible that the trend of global economic growth can change in 2019, due to such issues as the U.S.-China trade row and Brexit.

Domestically speaking, a consumption tax hike from the current rate of 8 percent to 10 percent is planned for October, after having been postponed twice already by Prime Minister Abe. The government is scrambling to prevent an economic downturn by incorporating some 2 trillion yen into its fiscal 2019 draft budget to counteract the tax hike.

"It's extremely difficult for Japan to avoid trends coming from abroad and maintain high growth," says Koichi Fujishiro, chief economist at Dai-ichi Life Research Institute Inc. "If the Nikkei average falls to about 18,000 yen, there's a possibility that the postponement of the consumption tax hike will be deliberated again."

(Japanese original by Satoko Takeshita, Business News Department)

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