Three weeks before Japan increased its sales-tax for the first time in 17 years, Prime Minister Shinzo Abe turned to Nobel laureate Robert Shiller to try to restore a vital ingredient of his economic revolution: optimism.

Shinzo Abe

Abe met the Yale University professor in Tokyo on March 10 to discuss how to reverse what the Japanese leader calls the “shrunken mindset” entrenched in the country after two decades of economic stagnation. With a public-relations team of about 100, TV appearances and use of buzz-words like Abenomics, Abe is trying to revive a risk-taking spirit to unlock the investment, spending and wage gains needed to sustain his reflation plan.

“It’s important to have it sound like a revolution,” said Shiller, co-author of the 2009 book “Animal Spirits: How Human Psychology Drives the Economy and Why it Matters for Global Capitalism.” “Launching animal spirits is about capturing the public spirit — the zeitgeist.”

While Abe met with early success in stoking consumer prices and confidence, last month’s tax increase sent business and household sentiment tumbling. The task for the administration now is to ensure the dip proves temporary. A June announcement on measures to expand business opportunities provides Abe with the next test of his strategy.

Shiller said he and the prime minister discussed that “third arrow,” which follows fiscal and monetary stimulus. Those first two prongs of the economic plan have so far failed to induce the pay rises and investment needed to offset the effects of the higher sales tax.

Emotional Contagion

“A large part of Abenomics is psychology,” said Yoichi Sekizawa, a senior fellow at RIETI, a think-tank linked to Japan’s trade ministry. Abe’s language on TV shows he’s trying to lift the national mood by “emotional contagion,” or changing people’s perceptions by blanketing them with positive messages, Sekizawa said.

“If my mindset is negative, this will likely have an effect on the whole country,” Abe said on Fuji TV’s “Waratte Iitomo” variety show in March. “I have to be as cheerful as possible.”

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