Abenomics

Abenomics (a portmanteau of Abe and economics) refers to the economic policies advocated by Shinzō Abe, the current Prime Minister of Japan.

Abenomics is meant to resolve Japan's macroeconomic problems. It consists of monetary policy, fiscal policy, and economic growth strategies to encourage private investment. The detailed policies includes inflation targeting at a 2% annual rate, correction of the excessive yen appreciation, setting negative interest rates, radical quantitative easing, expansion of public investment, buying operations of construction bonds by Bank of Japan (BOJ), and revision of the Bank of Japan Act.

Fiscal spending will increase by 2% of GDP, likely raising the deficit to 11.5% of GDP for 2013. In 2012, the National Diet passed the bill to increase the consumption tax rate to 8% in 2014 and 10% in 2015 to balance the national budget, and it is expected that the tax hike will discourage consumption. In 1997 the consumption tax was increased from 3% to 5%, and then deflation started; the nominal GDP growth rate was below zero for most of the 5 year after the tax hike.

As of 2013 May, it has achieved to depreciate the yen to 102yen to a dollar, which was stagnating around 80 in 2012. Also, according to a survey carried out by Nikkei Newspaper in Japan, 74% of the respondents praised the policy in alleviating Japan from the prolonged recession.

Lost Decade

The economy had been depressed after the asset bubble burst in the early 1990s, and it suffered from the recession. The NGDP growth was slow so that it could not absorb the unemployment. The consumption-tax-hike in 1997 worsened the depression. The nominal GDP growth rate plunged to -1.8 percent in 1998, and the jobless rate soared to 4.1 percent.

year	NGDP (billions of yen)	NGDP growth (%)	unemployed persons (thousands)	economically active population (thousands)	unemployment (%)
1994	486526.3	1.19	1920	66450	2.88
1995	493271.7	1.38	2100	66660	3.15
1996	502608.9	1.89	2250	67110	3.35
1997	512248.9	1.91	2300	67870	3.38
1998	502972.8	-1.81	2790	67930	4.10
1999	495226.9	-1.54	3170	67790	4.67

Note: NGDP at 2006 prices

Criticism

At a meeting at the House of Representatives, the Democratic Party of Japan President Banri Kaieda questioned several measures of Abe's economic plans and also criticised the administration's plan of inflation targeting, concerned that it may result in a drop in real wages if jobs and salaries only increase marignally. Abe asserted that his administration would achieve higher wages by reinforcing competitiveness and growth potential (such as modifying tax policies and greater investment in R&D), macroeconomic policies and sustainable fiscal structure.

European Central Bank policymaker Jens Weidmann expressed concern that government interference and pressure on the Bank of Japan endangers their independence and may lead to currency wars. Russian Central Banker Alexei Ulyukayev considered the possibility that other countries might follow suit and engage in destabilising devaluations.

On the other side, the Nobel laureate of economics Joseph Stiglitz wrote an entire guest commentary explaining why Shinzo Abe's programme for Japan’s economic recovery has led to a surge in domestic confidence. He actually questionned how far Abe's “Abenomics” could claim credit. He referenced Momcilo Stanic, saying there is every reason to believe that Japan’s strategy to revive and boost its economy will be a success.

See also

• Economy of Japan
• Shinzō Abe
• Reaganomics