Prime Minister Shinzo Abe’s economic policy, dubbed “Abenomics,” was widely viewed as the principal prop of his administration.
The Abenomics program underpinned the administration’s basic strategy, which was based on the notion that it would survive unpopular policy decisions or scandals as long as the economy was on a roll.
But the economic policy ran into an impasse. It produced some results during Abe’s first years in office. But after the midway point in his tenure, the administration had to repeatedly replace the centerpiece of the program.
After the economy began to falter two years ago, Abenomics receded to the background.
The novel coronavirus pandemic has delivered a blow to the economy, and the administration is still struggling to overcome the crisis.
The question is why the Abe administration failed to fully achieve its economic policy goals despite his long tenure.
The next administration’s economic policy will remain adrift unless a meticulous postmortem on Abenomics is conducted to learn lessons.
Originally, the Abe administration advocated “three arrows” of aggressive monetary easing, flexible fiscal stimulus and a growth strategy aimed at fueling private-sector investment.
The three pillars are basically standard policy responses to the weakening economy although the Bank of Japan’s “different dimension” monetary expansion was exceptional in terms of its scope and extent.
With the headwind coming from global economic expansion, a correction to the excessive strength of the yen helped Japanese companies ramp up their earnings. The job picture improved, while prices appeared to be on an upward trajectory, at least for a while.
However, the performance was not impressive if economic growth rates are averaged out over the years.
The average annual growth rates through fiscal 2019, which ended in March 2020, were about 1 percent in real terms and about 1.6 percent in nominal terms–roughly half the administration’s targets of 2 percent and 3 percent, respectively.
While the cost of winding down the monetary expansion program has surged, the inflation rate is still far below the BOJ’s target of 2 percent per annum.
The administration produced “new three arrows” of its economic policy in 2015: increasing the nominal gross domestic product to 600 trillion yen ($5.69 trillion), raising the “desired fertility rate” to 1.8, and ensuring that no worker will have to quit their jobs to care for family members who need nursing care.
But there is no telling whether these new targets will be achieved. For example, the desired fertility rate–or the estimated fertility rate that would be recorded if all people wishing to get married and have children see their wishes come true–has been steadily declining since 2015.
The administration has accomplished two goals under policies it inherited from the previous government led by the former Democratic Party of Japan.
It has concluded negotiations for the Trans-Pacific Partnership (TPP) multilateral trade agreement and raised the consumption tax rate twice for fiscal rehabilitation.
Still, the U.S. administration of President Donald Trump withdrew from the TPP agreement. The consumption tax hikes were delayed twice, slowing the pace of fiscal reform, and the economy screeched to a halt after the tax hikes.
The administration deserves credit for supporting strong corporate earnings and robust job creation, which continued until recently. But these improvements failed to lead to significant growth in wages and consumer spending and bring about a sustained economic expansion.
The administration put pressure on companies to boost wages and proposed a sweeping work style reform, but these initiatives also fizzled out before producing notable results.
The administration has its limitations due to its dependence on the support of the business community, which prevented it from focusing its efforts on raising the living standards of workers.
Measures to stoke economic growth are doomed to end up being a list of empty slogans unless they are firmly based on a vision that goes beyond supporting the recovery of corporate performance.
Key questions policymakers should ask themselves include what an improved economic society means exactly and what specific actions are needed to realize it.
More in-depth debate is required as the nation faces the novel coronavirus pandemic, the U.S.-China conflict and the growing power of giant information technology companies to control economies.