Shinzo Abe will be best remembered for bringing in 'Abenomics' - an economic strategy to revive Japan's economy after a long period of stagnation. The former prime minister, who died earlier today after being shot while campaigning for the parliamentary elections, introduced the economic policy package during his second stint, popularly referred to as Abe II, from December 2012 to September 2020.
It focused on the need to boost the expenditure of the government, increase the supply of money in the country, and bring in reforms for Japan's economy to be witnessed as competitive. In the 90s, also called the Lost Decade, Japan's economy faced crucial situations. The period was marked by the economic depression, followed by the great bubble burst of real estate and assets in the 1980s and early 90s respectively. Abe's long tenure as the prime minister aided in the implementation of sound economic policies and the acceleration of economic growth.
Economic experts and analysts told THE WEEK that when Abe took control of the office, Japan was not in great shape economically, and in spite of being the third-largest economy in the world, its GDP growth was negative. Japan’s exports had reduced and it was heading towards the great recession. The Japanese economy faced an ageing population and expanding social welfare expenses. No other country has experienced Japan’s growth of retired people.
“The interest rates were high, so no one was willing to borrow money. Abenomics focused on aggressive monetary policy, fiscal consolidation and growth strategy. The main aim of Abenomics was to increase demand and achieve an inflation target of 2 per cent. Abe's policies were intended to increase competition, expand trade, and raise the rate of employment in the economy. Abe reduced the interest rate to zero and, in fact, during his tenure, the interest rates went negative. At the same time, Abe’s government started to print more money as it would result in people spending more and the inflation rate would go up. Abe wanted to increase the inflation rate to moderate and have stable economic growth,” said Tanvi Kanchan, head, corporate strategy, Anand Rathi Shares and Stock Brokers.
She says Japan was also facing a labour shortage and so Abe introduced structural reforms. Japan invested in childcare educational reforms and also incentivised people to have kids.
“Abenomics had immediate effects on various financial markets in Japan. It led to a dramatic weakening of the Japanese yen and a 22 per cent rise in the TOPIX stock market index. Also, when compared to 2012, the nominal GDP of Japan grew by 48.4 jpy trillion.The number of an employed persons (female) grew by a record 4.4mn from (3.3mn), the corporate pre-tax profit grew by 42.1 jpy Trillion. There was a reduction in the unemployment rate was reduced by 2.4 per cent. It is less than 3 per cent and is considered a major success. Also, private non-residential investment grew by 16.2 jpy Trillion and tax revenue grew by 16.2 jpy Trillion,” said Kanchan.
Experts point out that Abe’s policy quiver had three arrows; printing additional currency to reach modest inflation; increasing government spending to stimulate the GDP and finally, enacting regulatory and government reforms to make Japanese industry more competitive. “Every economic policy has intended and unintended consequences. Low interest rate regimes coupled with high money supply and government stimulus in Abe’s Japan, or globally now post Covid, leads to short term gains in terms of stimulating the economy, spurring investment and arresting unemployment. Over time though, it leads to runaway inflation, and when combined with global factors (such as commodity or oil price shocks), can lead to currency devaluation and other unintended consequences. It can create environments of immense speculation and bubbles in certain asset classes, which leads to crashes down the road. There is no policy for all seasons. Abenomics works for a period and the challenges it is designed for, but no policy can be a silver bullet for all woes,” Utkarsh Sinha, managing director, Bexley Advisors, a boutique investment bank, told THE WEEK
Analysts also feel that the economic goals set out are yet to be reached and there are arguments that economic reforms have not done much to increase inflation with the national debt remaining high. “Japan suddenly began see an increased inflation rate since April 2022. It was at 2.5 per cent in May 2022. The growth has been sustained over a period of no less than nine months. Food and energy costs are rising significantly, not because of the demand but due to the pandemic-induced market disruption and the Ukraine war. The Yen has touched a two-decade low against US dollar causing serious worried to Japanese business. As of now, it is difficult to judge the repercussions on Abenomics. Whatever could be the outcome, Abe experimented and explored the possibilities to make Japan reach the top economically,” said Girish Linganna, director, ADD Engineering Components India Limited.
Branding expert Harish Bijoor feels that with the death of Abe, an era in Japanese economic history is over. “Abenomics is a term that crept into modern economic theory thanks to Abe who jolted the Japanese economy into fitful bouts of completely necessary growth. He will be remembered fondly by many, just as he was felled by a set of mindless bullets,” said Bijoor.
