The newly re-elected Japanese Prime Minister, Shinzo Abe, has caused controversy in recent months for his ‘hands-on’ approach; namely, the intensification of nationalist rhetoric in political discourse, and the firm implementation of ‘punchy’ economic policy, known collectively as Abenomics. Such policies are reactions to growing issues in Japan, such as reduced Japanese influence in international politics, and weak growth, high debt and deflation in economics. The Abenomics package is driven with full intent, but there are questions being asked such as: is the package too much too fast? And, will said problems only intensify in the near future? Abe is attempting to ‘toe-poke’ Japan back to the top of the economic pile, and his tactics should be watched closely for two reasons: (a) in order to discern how Japan’s position will be affected; and (b) to discern if there are vital lessons to be learned from Prime Minister Abe’s bold moves. In fact, an even more detailed growth strategy is to be announced later this year by the central government – what the world currently understands as Abenomics is only the beginning of an assault on Japanese economic decline.
The Winter of Discontent
In order to get to the bottom of Mr Abe’s reasoning, one must explore Japan’s modern economic experience. After World War II, Japan’s economy was fostered by the Americans, growing beyond anybody’s expectations, and peaking in size and stature in the early 1970s. Still growing, the 1970s and 1980s came and went, before the ‘bubble burst’ in the early 1990s. Since then, weak growth has hampered continued development plans – such failure has been caused by a number of reasons. In the period encompassed roughly by 1990 and the present day, economic complications, such as an ageing workforce and several uncompetitive production sectors, contributed to poor growth measures. This in turn was affected steady deflation, which discouraged investment by private capital and decreased consumer spending – both rare concepts in such a large economy, the second largest by total GDP until 2011. The shortfall caused by these combined factors led to an increase in relative government spending and hence an increase in public debt levels. Not since 1992 has Japanese public debt equalled the G7 average, and currently, gross debt lies at around 240% of Japanese GDP. This is compared to the UK, where public debt is around 90% of total GDP. Some of Mr Abe’s critics are sceptical of how his policies will actually solve these intrinsically connected problems. Others believe a sharp kick is exactly what is required, and also what has been lacking in recent Japanese economic policy.
The Sun of York
Daniel Harari’s House of Commons report groups Mr Abe’s policies into three categories promoting three separate aims: to increase inflation, to boost growth, and to reform Japan’s national economic structure.
Increasing Inflation – In terms of monetary policy, the ever-controversial tactic of quantitative easing will be doubled in order to free up capital with which to purchase assets. Government bonds will also be increased in length to force investors into bolder moves. These approaches aim to reverse deflation and weaken the Yen in order to boost exports. There are of course risks involved, such as potential hyper-inflation and exploitation by non-Japanese economic actors. But managed carefully, the increased availability of capital could be perfect for the Japanese recovery effort.
Boosting Growth – Mr Abe also announced a stimulus package worth £75bn to boost short-term growth and attempt to kick Japan back into economic prosperity. Critics here highlight the frequency of which such an approach has been followed before – and the lack of success of such policies – as well as the addition of further debt to the mounting deficit. The government’s package, in order to justify other policies, must have an impact – confidence may be restored if the stimulus has immediate positive effect.
Structural Reform – Mr Abe is looking to the longer term with reforms that will both liberalise and socio-economically equate Japan’s economy. Analysts have highlighted the potential drag effect of protected markets, such as energy, that could be far more competitive and dynamic if deregulated. Thus, the government intends to liberalise such areas to increase cash flow and maintain growth. But the plans also discuss intervention in labour markets, via reforms to increase the proportion of women and young people in employment, the lack of which is an effect of the ageing population crisis currently gripping Japanese demographics. Despite both of these positive policies, there are again critics that are sceptical that Mr Abe will be able to match his rhetoric with materials actions.
Simply the bold nature of Abe’s policies will spark debate. All mentioned aim to inflict distinct change on the Japanese economy in either short or medium term. How such approaches will affect economic performance and the Japanese international position will determine Abe’s legacy – the Prime Minister has made Abenomics his forte. Combining it with the nationalist discourse could, in one way, create a self-determining and all-powerful Japan not seen since World War II. In another way, the world could see an embarrassing flop of over-excursion and hypocrisy. The end of the calendar year could be an early indicator of the level of Shinzo Abe’s success.