Abenomics
Candlefocus EditorWhen Shinzo Abe became Prime Minister of Japan for the second time in 2012, one of his top priorities was to tackle the nation’s ongoing economic issues. His solution to this problem was Abenomics, a set of economic policies focused on stimulating the Japanese economy and rebuilding consumer confidence. Abenomics is comprised of three main arrows or strategies, and is designed to be an overarching set of economic policies which, when taken together, have a positive effect on Japan's macroeconomic health.
The first arrow of Abenomics is an increased money supply. In 2013, the Bank of Japan implemented an “unlimited easing” policy which is essentially a commitment to increase its monetary base by 60-70 trillion yen annually. This increase in the money supply is intended to help spur economic growth by driving down interest rates and encouraging business investment and consumer spending. It is hoped that this influx of liquidity into the economy will lead to higher job growth and rising wages, in turn creating a virtuous cycle of higher expenditures and rising incomes.
The second arrow of Abenomics is a strategy of government spending to stimulate the economy. Prime Minister Abe’s government has increased the budget for public works investment and has taken other measures to stimulate spending, such as increasing subsidies for consumers, businesses, and local governments. This strategy is aimed at helping to kickstart growth in the short term while new policies are implemented. This has been controversial in some ways, since Japan already has one of the highest levels of public debt in the world.
The third arrow of Abenomics is a series of structural reform policies aimed at making Japan more competitive in the global market. Prime Minister Abe’s government has taken steps to liberalize certain industries, such as energy and agriculture. It has also lowered corporate taxes, created economic partnership agreements with other countries, and implemented labor reforms to encourage higher wages. These reforms are intended to improve Japan’s long-term economic prospects by helping businesses become more competitive and improve profitability.
Over the past five years, Abenomics has grown and evolved, encompassing broader goals for economic and social reform. Prime Minister Abe has continued to champion his “three arrows”, but has also added other initiatives such as promotion of female employment, a push for sustainable growth, and a concept known as “Society 5.0”, which is aimed at further digitalizing and automating the Japanese economy.
In the end, the success of Abenomics will depend on the effectiveness of its policy implementations. It remains to be seen if the initiatives proposed by Prime Minister Abe, such as increased government spending, structural reforms, and monetary easing, will be enough to revitalize the world’s third largest economy. Whatever the outcome, Abenomics has certainly been a bold experiment in economic policy and has provided an alternative approach for governments around the world dealing with economic stagnation.