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TOKYO: When Shinzo Abe from Japan took office in 2012, he promised to revitalize the country’s economy with a policy that came to be known as “Abenomics.” But what has the program accomplished?
As the prime minister announced his resignation on Friday, here’s a look at the key policy goals and the extent to which they have been achieved:
Greater monetary flexibility
Upon his return to power after a disastrous first term from 2006 to 2007, Abe struck a deal with the Bank of Japan (BoJ) that saw him implement an unprecedented monetary easing policy.
The goal was to lower the cost of borrowing, stimulate business activity and personal consumption, and bring inflation to a target of 2 percent to end the deflation that had plagued the Japanese economy since the 1990s.
The BoJ policy helped strengthen the competitiveness of Japanese exporters by weakening the yen, but the inflation target has remained stubbornly out of reach.
The Japanese economy has gradually recovered and prices have risen slowly, but are still well below expectations.
The country even experienced deflation between 2015 and 2016, making an unwelcome comeback this year with the global economic crisis triggered by the coronavirus.
Public spending in abundance
The BoJ’s efforts were combined with stimulus in the form of massive public spending, the second of Abenomics’ “three arrows”.
Hundreds of billions of dollars were spent starting in 2013, particularly for modernizing infrastructure across the country, some of it with a view to the 2020 Tokyo Olympics.
The spending boosted income and investment for businesses, boosted the financial and real estate markets, and helped support the country’s growth for several years.
But it didn’t stop the national economy from derailing multiple times: Gross domestic product (GDP) contracted between 2014 and 2015 before recovering, and the country slipped back into recession in 2020, even before the coronavirus crisis hit.
With an aging population more inclined to save than to spend, consumption has remained stubbornly low. And spending was further affected by two excise tax increases, in 2014 and 2019.
Economists both times warned that the hikes would reverse the economy, but the government pressed on, spurred by its mounting obligations in a country with the world’s highest debt-to-GDP ratio.
With the coronavirus causing economic devastation and forcing a nationwide postponement of the Olympics and a steep drop in tourism revenue, the government has unleashed a massive new stimulus.
But Japan’s growth potential is falling because “the government lacks a green recovery vision and digital initiatives,” said Sayuri Shirai, a professor at Keio University’s faculty of policy management and a former member of the policy board. of the BoJ.
Structural reforms
Abenomics’ first two arrows could not work without the prime minister’s third promise: structural reforms.
A primary target was Japan’s job market, characterized by a post-war boom-era model in which workers could expect life-long employment and broad benefits in jobs at one of the country’s giant firms.
But attempts to reverse the calcified pattern and promote greater flexibility have moved too slowly, experts say.
“At first, we thought that the government was buying time through monetary easing and fiscal policy to prepare for structural reforms, which are painful,” said Masamichi Adachi, an economist at UBS.
“However, this time was not used wisely for structural reforms,” he told AFP.
There have been some positives, including a growing number of women and older people in the workplace, and some relaxation of the country’s strict immigration policy, which may help address chronic labor shortages.
But many of the reforms “have not been bold enough” to boost labor productivity, “Shirai said.
The pandemic, he added, revealed “not only the vulnerability of Japan’s business sector, but also inadequate electronic public services” and the slow implementation of government policies.
