Markets may be fussing about what the Federal Reserve's next move will mean for Asian economies over the next year, but the region also faces three homegrown issues, Pimco said.
The first issue is whether Abenomics, the economic overhaul introduced by Japanese Prime Minister Shinzo Abe, will continue to support Japan's economy, said Ramin Toloui, Pimco's global co-head of emerging markets portfolio management, in a note. Pimco has $1.97 trillion under management.
He expects the boost from Abenomics will fade, especially once it's confronted by the increase in Japan's value-added tax to 8 percent from 5 percent, which is set for April.
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"Consumption was front-loaded ahead of the tax hike and fiscal stimulus was added, both of which were the key drivers of Japan's gross domestic product (GDP) growth over the last few quarters and will likely contribute much less in 2014," said Tomoya Masanao, Pimco's head of portfolio management in Japan, in the same note.
But he added, Japan's policymakers are likely to be "all-in" on fresh policies if the economy weakens too much, especially with another consumption tax hike set for 2015.
"Growth strategy or a supply-side policy to raise potential growth rates will ultimately be a key for the success of Abenomics, yet it has not been promising," Masanao said.
"The domestic private sector may lose confidence if Prime Minister Abe starts to consume his political capital outside the economic policies," Masanao added.
Opinion polls have found support for Abe has declined to its lowest levels since he took office after his coalition pushed a tough security act through parliament, amid fears it could allow media suppression and hiding official misdeeds, Reuters reported last week.