Tokyo, Aug. 28 (Jiji Press)–Japanese Prime Minister Shinzo Abe’s announcement on Friday of his decision to resign spells the end of his reflationary policy mix, dubbed Abenomics, which failed to achieve its aim of revitalizing the country’s economy.
Despite the weak yen and high stock prices under Abenomics having led the Japanese economy to post the second-longest expansion in the post-World War II period, this did not translate into prosperity for ordinary people. With the novel coronavirus epidemic limiting economic activities, the policy goal of revitalizing the economy seems further out of reach.
The Japanese economy had been in a prolonged period of deflation before Abe’s return to power in December 2012. Upon coming back as prime minister, Abe said that he would pull off a flying start for economic revitalization, launching his signature policy mix.
Abenomics consisted of the “three arrows” of monetary easing, fiscal spending and growth strategy.
Under the Bank of Japan’s unprecedented easing policy, the yen weakened and greatly improved the earnings of Japanese companies, especially those in manufacturing industry.
The economic expansion that started at the same time as the launch of the Abe administration lasted 71 months, until October 2018.
The dollar, which traded above 80 yen in late 2012, topped 120 yen briefly. The key Nikkei average of 225 selected issues listed on the first section of the Tokyo Stock Exchange rose from around 10,000 to 24,270 in October 2018.
The confidence gained through the success led Abe to proclaim “Buy my Abenomics” in a speech at the New York Stock Exchange in September 2013.
But the economic growth did not trickle down to Japanese citizens as real wages decreased every year from 2013 except for in 2016 and 2018, and private consumption did not rise significantly.
Worries of deflation still remain as inflation has not reached the target of 2 pct set by the BOJ. The government has yet to declare that deflation has been overcome, reflecting fears that prices may slip back down.
The two postponements of the consumption tax rate hike and multiple economic stimulus packages implemented under the Abe government further worsened the country’s finances.
The last arrow, growth strategy, proved to be a dud as campaigns for regional revitalization, dynamic engagement of all citizens and work style reforms all failed to raise Japan’s potential growth rate above 1 pct.
Abe will leave the prime minister’s office with the country’s real gross domestic product in April-June shrinking at an annual rate of 27.8 pct from the preceding quarter, the steepest drop in the postwar period. Uncertainty regarding employment and incomes is growing among Japanese people.