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WHY IS MARKET TURMOIL SHAKING CONFIDENCE IN ABENOMICS? Japan's share prices had gained 70 percent in the past six months before several big one-day declines, on hopes for an economic recovery and expectations that the weaker yen will improve the exports and overseas earnings of Japanese companies. The recent stock market sell-offs suggest confidence in Abenomics may be shaky, especially since yields on long-term Japanese government bonds will inevitably rise if the government succeeds in sparking inflation, vastly increasing the burden of repaying public debt that is already twice the size of the economy. Traditional strengths such as vast trade surpluses have reversed as Japan imports more oil and gas, while nuclear plants are idled in the aftermath of the Fukushima disaster. WHAT TO EXPECT NEXT: Supporters of Abenomics say they expect a recovery by mid-year, as the economy enters a "virtuous cycle" of rising prices, rising wages and surging demand thanks to a recovery in corporate investment. Skeptics question whether companies will raise wages and investment, and whether the recovery can prevail over the blows to demand from two looming sales tax hikes, even if Abe succeeds in pushing through politically difficult deregulation and other reforms needed to improve competitiveness and sustain growth in the long run.
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