Stagnant economic growth, sustained negative inflation, public debt that remains as high as ever, little reform to the labour market coupled with an ageing population, low fertility rate and few immigrants – Japan’s economy looks like it followed a recipe for disaster.
Prime Minister Shinzo Abe’s ambitious vision to revive the sluggish economy since December 2012 has been criticised as falling short of expectations and indeed when examining the country’s economic data, it does seem like the “three arrows” of “Abenomics” have largely failed to hit their targets.
The Issue Of Public Debt
According to Trading Economics, government debt to GDP in Japan averaged 123.60% from 1980 until 2015, reaching an all-time high of 229.20% in 2015. Consumer prices in Japan dropped by 0.4% in July 2016, at the same pace as in the previous two months, marking the fifth straight month of decline. And, perhaps most worryingly, Japan’s nominal GDP has remained similar to its level 20 years ago whereas America’s increased by 134% and even Italy saw a rise of about 75% in the same period. But is it all doom and gloom for a country that was viewed as the lynchpin of economic growth and dynamism in the 1980s?
Unlike other countries, Japan’s core inflation figure includes energy prices and when these are excluded, consumer prices have actually risen for 32 consecutive months. Compare this to the situation before Abenomics, when Japan’s prices followed a declining trend for over ten years: Japan has boosted inflation whereas inflation rates have fallen in other countries including Britain.
Womenomics At Play
Despite a 3.5 million decrease in the working-age population, the number of workers has risen by 1.5 million after Abe was elected, due to a strengthening in the demand for labour.
Credit must also be given to “Womenomics” a policy which, despite attracting much public and political disapproval, has led to the increased presence of women in the workforce as evidenced by the 200,000 extra places in nurseries to assist working parents and regulations to prevent discrimination against pregnant employees.
Yet perhaps the most overlooked aspect is the concept of Abenomics itself. Some critics say that the policy allowed Abe to boost his own popularity and revise Japan’s peace constitution so that the army could play a more active role. But it has had a significant impact compared to other attempts to resuscitate the economy, provided the Japanese people with motivation and laid the groundwork for possible radical reforms in the future.
The Unpopular Features Of Abenomics
So it is not the end for Abenomics. In July, Abe promised another bout of fiscal stimulus in the form of ¥28trn of spending and more quantitative easing. However, fresh spending and monetary stimulus will not prove effective if tough structural reforms are not implemented.
Japan still needs to expand its workforce, hire even more women and raise the retirement age. This will be difficult due to cultural traditions and seniority systems in the workplace. One of Abe’s schemes which offered ¥300,000 to small companies that recruited women into senior roles was highly unpopular.
Young foreigners are needed to fulfil labour demand and counteract the greying population. The number of immigrants has increased by a third since Abe’s election, but policies regarding this issue remain controversial due to xenophobia. And finally, more revenue needs to be generated to reduce Japan’s heavy debt burden through consumer and corporation tax increases as well as enabling firms to hire and fire workers more easily.
The arrows of Abenomics have certainly missed the bullseye. It has not lived up to expectations, but neither is it the failure that some world leaders, politicians and economists make it out to be. As aptly put in The Economist, “Abenomics has underperformed its targets but outperformed the past”.
More vigorous strategies need to be implemented to ensure that “Japanisation”, a term coined to describe the stagnating economy, ends soon. Only then can the fiscal stimulus, monetary easing and structural reform arrows fly confidently to the dartboard and hit the target.