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ECONOMY > Economic Policy

As “Abenomics” fades, placing primacy on the economy no longer works

  • August 25, 2020
  • , Nikkei , p. 4
  • JMH Translation

“That is impossible,” Prime Minister Shinzo Abe told Executive Acting Secretary-General Tomomi Inada of the Liberal Democratic Party who visited him at the Prime Minister’s Office on Aug. 3.

 

She expressed dissatisfaction because the government did not specify a target year for achieving a primary balance surplus in the “big-boned” policy.

 

The prime minister’s estimate of achieving a surplus in fiscal 2025, which was set two years ago, has been derailed by the COVID-19 pandemic. The additional issuance of government bonds for measures against COVID-19 is close to 100 trillion yen.

 

‘Austerity is impossible now,” said Prime Minister Abe. “There is a difference between theoretical correctness and political choice.” In this way, the prime minister indicated his stance of not sticking to the target.

 

The second administration, which was inaugurated at the end of 2012, got off to a flying start with the “three arrows” of the Abenomics economic policy: monetary easing, fiscal expansion and growth strategy.

 

The yen’s rise and the drop in stock prices under the administration of the Democratic Party of Japan has been rectified, and the Japanese market has caught the attention of foreign investors. The jobs-to-applications ratio, which was 0.83, reached 1.63 in April 2019, the highest level since 1974.

 

Prime Minister Abe has come up with his own “law” of government management after he failed to carry out difficult tasks simultaneously during his first administration: Implementing policies he has wanted to try after gaining support through the Abenomics economic policy; if approval ratings fall, he will put priority on the economy again to regain support.

 

A typical example of this is the response to security-related legislation that partially authorized the exercise of the right of collective self-defense. When the bill was passed on September 19, 2015, he presented his “new Abenomics” economic policy including a desired birth rate of 1.8 at a press conference on Sept 24. The prime minister aimed to regain support through economic policies that focused on distribution.

 

The prime minister connected the consumption tax to the two dissolutions of the House of Representatives followed by general elections. He advocated the Abenomics economic policy, making points of contention the postponement of the consumption tax hike and the change in the purpose for using the consumption tax. He also won the Upper House election in the summer of 2016, calling for the postponement of the consumption tax hike.

 

His law of government management has resulted in stable approval ratings. The Nikkei’s polls show that his approval rating has never fallen below the dangerous line of of 30%. He achieved nine consecutive victories in national elections and LDP presidential elections and established himself as leader without rivals. 

 

After June of this year his approval ratings started falling. It is time, according to his law of management, to put economy at the forefront. There seems, however, a change in the law.

 

“The consumption tax should be cut,” said Shoji Nishida [a House of Councillors member] during a liaison meeting of the LDP Board members in June. He is an aggressive fiscal expansion advocate and supporter of Prime Minister Abe. He called for the consumption tax cut to 8%. There was speculation within the party that Prime Minister Abe may again go ahead with the dissolution of the House of Representatives with a tax cut as a point of contention, but there was no indication that he will do that.

 

Amid dealing with the COVID-19 situation, it is uncertain whether calling for the Abenomics economic policy will lead to regaining support for the administration.

 

The government officially acknowledged in July that the economic recovery ended in October 2018 and the economy entered a recessionary phase. Breaking the record for the longest post-war economic recovery thus ended in an illusion. When Minister of State for Economic and Fiscal Policy Yasutoshi Nishimura briefed the prime minister on it, he only replied, “OK.”

 

The prime minister stopped referring to the Abenomics economic policy during press conferences this year. He mentioned the word 18 times during press conferences in June before the 2016 Upper House election and 11 times in November before the 2014 Lower House election. The number gradually decreased since the second half of 2018.

 

The “V-shaped recovery of the post-COVID-19 economy” that he repeatedly spoke of this spring is also difficult to mention now. This is because it may sound unrealistic due to the second wave of infection after July.

 

“There is a high risk of another recession and chronic deflation due to COVID-19,” said Harvard Kennedy School Research Fellow Paul Sheard, who exchanges views with the prime minister on the Japanese economy. “Now is the time for the Japanese government to commit to a reflation policy.”

 

The management of the economy in the remaining one year or so of the prime minister’s term seems chaotic.

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