Japan has been far away from a stellar performance. The “two lost-decades” were a significant shock for one of the largest and developed economies in the world.
Stock markets were not considered anymore a potential investment by the investors. The collapse of equity prices led to toxic balance sheets in the hands of the firms. There was an immediate decrease in the demand for investments. The balance sheets problems led also to the creation of non-performing loans as assets of balance sheets were used as collateral by borrowers. As a consequence we expect data that demonstrate an increasing number of bankruptcies in corporations or banks located in Japan. Japanese banking system found itself unprotected and fragile. The number of firms, which could not pay their creditors, unfortunately, kept a positive trend line. Companies closed their doors, translated in an immediate increase in unemployment rate. Japanese economy needed a new doctor to start a new life cycle, revitalisation.
On December 16 of 2012, the majority of Japanese voters supported the Liberal Democratic Party and its leader Shinzo Abe. A new second chance was given to Abe, as he previously served as Premier Minister of Japan from 2006 to 2007. In his first conference as Premier in Tokyo, Abe declared: “ With the strength of my entire cabinet, I will implement bold monetary policy, flexible fiscal policy and a growth strategy that encourages private investment, and with these three policy pillars, achieve results.” It is typical statement of a new elected leader that was trying to start a new challenge. Shinzo Abe knew very well, which was the previous picture of the Japanese economy and he was ready to win the battle against a third possible lost decade. The task of pulling the Japanese economy out of the deflationary spiral was listed at the top of his policy agenda.
Economists around the world introduced a nickname for this set, Abenomics. Abenomics became a main topic in the financial news headlines. Bold monetary policy, flexible fiscal policy and structural reforms build up Abe’s set of economic policies, named “the three arrows”. Each one was designed as response to the long-term recession experienced by Japan during the lost decades. Abe was ready to launch its arrows to restore consumers and business confidence and encourage new investments, which would have been a great support for revival of the Japanese economy.
The “three arrows” implementation has lead to big discussions among the economists. In its blog in NY Times, Paul Krugman stated:
“In a sense, the really remarkable thing about Abenomics- the sharp turn toward monetary and fiscal stimulus adopted by the government of Prime Minister Shinzo Abe- is that nobody else in the advanced world is trying anything similar. In fact, the Western world seems overtaken by economic defeatism.”
Joseph Stiglitz, a Nobel Laureate in Economics also, launched his opinion regarding the Japanese economy progress:
“Nonetheless, as many Japanese rightly sense, Abenomics can only help the country’s recovery. Abe is doing what many other economists have been calling for in the US and Europe: a comprehensive program entailing monetary, fiscal and structural policies. Abe likens this approach to holding three arrows- taken alone, each can be bent; taken together, none can.”