Abenomics refers to the economic policies of a particular politician, in the same way as Reaganomics or Clintonomics. It is a nickname for Japanese Prime Minister Shinzō Abe’s multi-pronged economic program.

Break the abenomics

Abenomics refers to the economic policies adopted by Japanese Prime Minister Shinzō Abe at the start of his second term.

Abenomics involves increasing the country’s money supply, stimulating public spending and adopting reforms to make the Japanese economy more competitive. The Economist described the program as “a mixture of reflation, public spending and a growth strategy designed to lift the economy from the suspended animation that has gripped it for more than two decades”.

The context

This “hanging animation” dates back to the 90s, also known as Lost Decade. It was a period of marked economic stagnation in Japan, after the massive bursting of the housing bubble in the 1980s, and the bursting of the asset price bubble in Japan in the early 1990s.

As a result, the Japanese government posted massive budget deficits, funding public works projects.

In 1998, economist Paul Krugman argued in a document entitled “Japan’s Trap” that Japan could raise inflation expectations, thereby reducing long-term interest rates and encouraging spending, out of this stagnation. economic.

Japan has adopted a similar technique known as quantitative easing, increasing the national money supply and keeping interest rates remarkably low. This facilitated an economic recovery from 2005, but did not prevent deflation.

In July 2006, Japan ended its zero rate policy. Although it still has the lowest interest rates in the world, Japan has been unable to stop deflation. The country saw the Nikkei 225 drop by more than 50% between late 2007 and early 2009.

The program

After briefly serving as Prime Minister from 2006 to 2007, Shinzō Abe began a second term in December 2020. Shortly after assuming office, he launched an ambitious plan to strengthen Japan’s stagnant economy.

In a speech following his election, Abe announced that he and his cabinet “would implement a bold monetary policy, a flexible fiscal policy and a growth strategy that encourages private investment and, with these three pillars, would obtain results”.

Abe’s program consists of three “arrows”. The first is to print additional currencies – between 60 trillion and 70 trillion yen – to make Japanese exports more attractive and generate low inflation – around 2%.

The second arrow involves new public spending programs to stimulate demand and consumption – to stimulate short-term growth and achieve a long-term budget surplus.

The third part of Abenomics is more complex: a reform of various regulations to make Japanese industries more competitive and encourage investment in and from the private sector. This includes reforming corporate governance, easing restrictions on hiring foreign workers in special economic zones, making it easier for companies to fire inefficient workers, liberalizing the health sector and implementing support measures for national and foreign entrepreneurs. The bill also aimed to restructure public services and the pharmaceutical industries and modernize the agricultural sector. Perhaps most important, was the Trans-Pacific Partnership (TPP), which has been described by economist Yoshizaki Tatsuhiko as potentially the “linchpin of Abe’s economic revitalization strategy”, making Japan more competitive through free trade.

The effect

In May 2020, although the Bank of Japan’s preferred inflation measure was up 0.1% from a year ago, growth in Japan stood at 1.2% year-on-year , well above the underlying Japanese rate; unemployment is 2.8%, a 22-year low. Japanese companies are trying to find ways to reduce the quality and quantity of their offerings instead of raising prices. According to the Financial Times, these cuts will not be enough: “Japan is ready for inflation”. And this in a difficult global economic context, which has done little to support economic recovery or inflation.

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