Though it appeared with great fanfare, “Abenomics,” the centerpiece economic policy of outgoing Prime Minister Shinzo Abe, is set to wither away like a flower that never bloomed, without achieving any significant results.
The policy got off to a good start. Economic restoration clicked into gear with the beginning of the second administration of Prime Minister Abe at the end of 2012, and the Nikkei Stock Average, which had hovered at around 10,000 yen, surged to the 15,000-yen level over the space of five months.
The prime minister, who called to lift Japan out of deflation, went ahead with a policy of bold monetary easing and active public spending, raising expectations within stock markets. It was around this time that he proudly told investors in New York, “Buy my Abenomics.”
The number of foreign visitors to Japan surged under the Abe administration. In addition to the government’s easing of visa requirements, the yen continued to depreciate under the Bank of Japan (BOJ)’s so-called “easing of another dimension,” raising Japan’s profile as an inexpensive travel destination. Shopping sprees by foreign visitors provided an additional tailwind for the Japanese economy.
But the momentum did not continue, with the average rate of economic growth hovering at only around 1% per year. Japan entered a recession nearly two years ago. The “longest period of postwar economic growth” that the government had sung of has ended as an illusion.
The biggest factor contributing to the administration’s misjudgment was a stagnation in wage increases. With the weakening of the yen, major companies benefitted from exports. But the benefits were not sufficiently returned to the public, and consumption, a pillar of the economy, slumped.
Disparity in society also emerged as a serious problem. The prime minister stressed that his administration had boosted employment, but the majority of new jobs were low-paying ones for non-regular workers. Meanwhile the benefits of higher stock prices were limited to Japan’s wealthy class. While the public was told that there had been an economic recovery, there were no doubt many members of the public failed to experience this as a reality.
Nevertheless, Abe poured effort into measures to boost stock prices — seen as a lifeline for a stable government. The administration continued to splurge in public finance, even though national debt was increasing via the issuance of government bonds. The central bank also bought bonds to prop up the economy. Stock prices subsequently rose above the 20,000-yen mark, but it was nothing more than a government-led market detached from the actual state of the economy.
Normally, though monetary easing and public spending may stimulate the economy, by themselves the outcome is only temporary. Unless the baton is passed on with a model of private sector-led growth, the nation cannot hope for a real economic recovery. In the wake of monetary and fiscal policies, the Abe administration sought to strengthen the nation’s growth strategy as the third “arrow” of Abenomics.
Each time an election was held, the government wielded eye-catching slogans such as “regional revitalization,” “dynamic engagement of all citizens,” and a “100-year life society” on the pretext of economic growth.
These are all important themes into which the government should pour its full effort, but the prime minister frequently changed the banners, and as a result, the policies all ended up half-baked.
The administration put more funds into fiscal and monetary policies, in spite of a lack of fruit, which only left Japan with a mountain of debt.
The balance of national and local debt as of the end of March this year topped 1.1 quadrillion yen (approximately $10.4 trillion), signifying an increase of nearly 200 trillion yen since the launch of Abe administration. The government had aimed to rebuild the nation’s finances in fiscal 2020, but Abe delayed this target by five years. The massive “negative legacy” left by the Abe administration will weigh heavily on the shoulders of future generations.
Meanwhile, the credit of the BOJ, which holds over 500 trillion yen (about $4.72 trillion) worth of government bonds, could be shaken, as it can expect to suffer massive losses when the interest on government bonds rises. If the yen suddenly plunges, it could throw the economy into chaos.
Prime Minister Abe raised the consumption tax twice, but he also repeatedly delayed the increases, and implemented generous economy-boosting measures, which only added to debt. Consideration of the economy is necessary, but when asking the public to bear the pain of sales tax hikes, the Abe government should have cut unnecessary spending and presented a path for rebuilding the nation’s finances.
A fundamental problem of the Abe administration is that it lacked a long-term outlook based on major structural changes in Japanese society, such as an aging and shrinking population.
As Japan’s population ages, social security costs are continuing to balloon. The government expects the nation’s population to sink from being in the range of 120 million in 2015, to around the range of 80 million by 2065. With fewer workers, each person’s social security burden will increasingly grow heavier.
The prime minister, however, has not attempted to focus on this tough outlook for the future. Without looking directly at the government’s population forecasts, his administration has adopted a slogan of retaining a population of 100 million in 50 years’ time.
In building finances to overcome an aging and shrinking population, it is impossible to avoid placing a burden on the public across the generations. But now Abe is trying to bring the curtain down on his administration while such problems remain shelved.
The Japanese economy currently faces a major crisis due to the spread of the coronavirus. The Abe administration has gone ahead with a huge amount of public spending to counter the effects of the pandemic, and as a result, debt has grown even larger.
Japan should not be cheap when it comes to spending to support the lives of the public. But that does not mean we can allow irresponsible increases in spending, which only add to the tab for the future. The incoming administration should properly present a long-term outlook for the nation.