By Hunter Bosson '18
Two and a half years ago, Japan embarked on the most ambitious anti-deflationary program in recent memory. After two decades of falling prices and economic malaise,
Prime Minister Shinzo Abe proposed his three “arrow” policy that would become globally known as Abenomics. Abe hoped a combination of monetary stimulus, expansionary fiscal policy, and structural reforms would set Japan free from its entrenched deflationary stagnation in a mere two years. Now as he begins his next term as leader of Japan’s majority party, Abe has proposed a new set of goals for his government to pursue. These goals, in their ambiguity, impracticality, and deviance from the tenants of Abenomics, signal the disappointing end of Japan’s great economic experiment and a warm embrace with another generation of stagnation.
It is painfully evident that Abenomics has not reenergized Japan’s economy. Despite 80 trillion yen ($671 billion) in purchases by the Bank of Japan in the last two years, the Japanese economy has failed to muster the 2 percent inflation rate that Haruhiko Kuroda promised when he assumed control of the BoJ. In fact, in August prices fell at an annualized rate of .1 percent. Economic activity has been similarly disappointing; despite a weak Yen fueled by the BoJ’s policies, the economy contracted at a 1.2 percent annual rate in the second quarter. Japan’s exporters may have found Abenomics profitable, as have investors in Japan’s surging stock market, but firm and consumer spending behavior lies dormant despite the stimulus.
Abe seems to have taken the hint that his plans have not worked; his new program is impressively uninspiring. Japan’s PM has pitched his three new “arrows” for his administration as a strong economy, child care support, and social security improvements. If those sound vague and self-evident, that would be because they are. Despite tepid details for his new “reforms” (such as growing the economy by 20 percent over an unspecified period of time), one cannot escape the feeling that Abe has given up. These new plans stink of hollow promises and blustering rhetoric that investors had not expected of Japan’s economic reformer. While certainly Japan’s demographic deficit is a major issue (Abe optimistically aims for a population drop of only 20 percent by 2050), its capacity to care for its aging population is contingent on an economic revitalization (in addition to policies that few in the Japanese Diet have the political will to pursue). Implicit in his new plans is a willingness to accept Japan’s stagnation as the new norm and just muddle through the next generation.
Japan’s Abenomics adventure seems to have come to a close, but for other countries the trek is just beginning. The developed world is aging, and its economies slowing, increasingly sending countries down the same path as Japan. Many such stagnating countries have turned to activist central banks to lead their economic crusades, but after the fall of Abenomics, we may be running out of options.
Sources:
http://www.ft.com/fastft/397151/what-make-of-japans-mixed-inflation-report