Posted by EeGhim Chua on Tue, May 07 2013

All Posts by EeGhim Chua

Japan’s New PR Revolution

For years, the yen has been on the path of a steady appreciation against the US dollar, with the greenback reaching an all-time low of 75 in October 2011.  But over the past 7 months, the yen took a U-turn and began a downward decline of 18%.  George Soros, the billionaire well known for breaking the Bank of England in 1992, reportedly made over a billion dollars by making a  bet against the yen since last November.

Much of the decline can be attributed to the work of Shinzo Abe, the newly elected prime minister of Japan, who vowed to bring the years of deflation that has plagued Japan’s economy for the past twenty years to an end, through a combination of fiscal spending and monetary policy. Popularly known as “Abenomics”, the cornerstone of his economic policy lies in his strong push for aggressive monetary easing in an attempt to bring up inflation to 2%.

However his approach is not without its fair share of controversy. Deemed radical even within Japan, it is a marked departure to the long held view that deflation is a real economic problem which cannot be tackled by monetary policy. This view was best summarised by former BoJ governor Massaki Shirakawa's speech on February 7th 2011 where he said that the fundamental cause of deflation is due to the decrease in GDP triggered by decrease in numbers of workers and productivity growth, and monetary policy will not enough to end deflation. Outside of Japan, the G20 meeting in Moscow earlier this year was dominated by the talk of currency wars, particularly targeted at Yen and BoJ’s monetary policy. It took centre stage both before and after the event where G7 had to release statements to diffuse talks of currency wars.

From the surface, “Abenomics” appears to be working so far with the market pricing in the expectation of the monetary easing. Since Abe’s election, the Topix Japanese stock index has climbed 41% over the past 4 months and has become the biggest rally for Japanese shares since 1987. Financial Times reported that companies in Japan have raised Y181bn ($1.9bn) - more than issuers in Singapore, Hong Kong and Australia combined, according to data from Bloomberg. And the weakening yen can further help boost exports, which is exactly what Abe hopes to achieve in order to stimulate Japan’s ailing economy.  

But this is where it gets interesting. Prior to the BoJ’s announcement on April 4th, Japan has yet to begin on the “unlimited” monetary easing program. It has merely pledged to do so. And at the crux of these reactions in the market, lies the well-planned communication strategy the Shinzo Abe and his team have executed.

One key objective of this communication strategy is to convey a vision of change and the belief that aggressive monetary policy holds the answer to ending deflation. This yields benefits to both the political and financial standpoints. It helps to position Abe as a figure who can lead Japan out of the economic malaise and is not afraid of being different from his predecessors. From the financial perspective, BoJ believes that it is able to manage market expectation of inflation by doing so. This has the effect of creating a self-fulfilling prophecy – the more BoJ claims that 2% inflation is possible, the more the public expects inflation to increase and the higher chance of inflation in reality. Such is the power of communication can yield in modern day economics.

Through Haruhiko Kuroda, the newly appointed BoJ chief, Abe has pledged that the central bank will “do whatever it takes to beat deflation in 2 years” and expressed clear confidence that the 2% target can be met.

The case of “Abenomics” holds some elements on what a good communication strategy should have. Here are some of the key takeaways.

1. Simple messages work best

Abe’s message has permeated every available media in the financial space. The beauty of the message lies in its clarity (from communication’s perspective) and simplicity, which conveys the goal precisely (ending deflation) and the means to do it (aggressive monetary policy).

2.The message must evoke the interest of the audience

Deflation has been deeply entrenched in Japan’s economy and the citizens. The drastic change of mindset provides hope while the controversial plan invokes reactions and debates, which further amplifies the message.

3.Use of distinctive phrases or slogans to label the strategy

Complex policy intentions involving purchasing longer term government debts or risky assets to push down yield curves has been given a media friendly term called “unlimited easing”, with compliments from Ben Bernake, Chairman of the Federal Reserve.

And the media contributed in the meantime by coining the term “Abenomics”, which completes the association between Abe and his economic policy intentions. All of these distinctive phrases/terms have the uncanny effect of summing up a 100 page post doctorate thesis on asset repurchase program, complicated monetary policy and central bank activity, thereby making it easy for everyone to understand.

4. Reinforce the message by repeating it consistently

Since the beginning, Abe has maintained a strong position on the need to adopt a radical approach and that Japan cannot tolerate any deflation further. Despite drawing widespread criticism from within and out of Japan, he took every opportunity to reiterate that “the goal of monetary easing is to drag Japan out of deflation” time to time again.

5. The communication strategy was carefully timed for maximum effectiveness

Abe’s economic policy was part of his election campaign vows which successfully led to his landslide victory in the lower-house election earlier on December 16 2014. It was kept in the media spotlight in the meantime during G20 meeting and again, when the former BoJ Governor Masaaki Shirakawawas retired in March 19 2014

All of these efforts are geared towards the election in June where Abe hopes to improve the economy in order to gain a higher chance of winning the upper house election, which in return, gain control of the parliament. With Japan’s economy stabilizing in the fourth quarter in 2012, many local and international media reports have attributed it to “Abenomics”. However, in reality, it can take years to see the effects of monetary policy.

6. Having an effective spokesperson who can communicate well with the audience

This is where Haruhiko Kuroda comes into the picture. Abe alone is unable to convince the world that his economic policy will work as he has neither the knowledge nor the experience of managing monetary policy. He is a politician, not an economist.

Kuroda is seen as an “ideal candidate” to succeed the previous BoJ Governor as he has the international connections, strong track and on top of that, English communication skills that allow him to better argue policy intentions to investors and international bankers.

At the same time, he is also seen as a long-time advocator for more aggressive BoJ activity having criticised the central bank’s action back in 2002 when he was a then, a vice minister in the Ministry of Finance.

His appointment as the new governor of BoJ is seen as an affirmation that BoJ will work closely with the government to fulfil their promise.

More importantly, he has also pledged that the central bank will “do whatever it takes beat deflation in 2 years” and expressed clear confidence that the 2% target can be met.

After getting off with a good start so far, all eyes will be on Abe and Kuroda to deliver what they have promised over the next few months. On April 4th, Kuroda announced an unprecedented stimulus program that promised to inject US$1.4 trillion into the economy in less than 2 years. A well- planned and executed communication strategy can help Kuroda and Abe achieve their goal of ending deflation in Japan within 2 years, but reviving the world’s 3rd largest economy requires more than words. It remains to be seen whether Japan’s new approach will be successful but at least one thing is certain – they have executed a successful communication plan.

Topics
BoJ, Cognito Asia, Japan, PR,
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