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Abenomics is Dying

Abe Bill

SNA (Tokyo) — A policy begins when it is announced by its policymakers, but it can be a much trickier matter to judge when a policy ends. Still, we may now say with some degree of confidence that the era of Abenomics is coming to an end. This is not dependent on whether today’s market meltdown in China is just a blip on the screen or the signal for something much more significant.

Abenomics, of course, captured the world’s imagination in the spring of 2013 with its imagery of the “three arrows” that would restore longterm growth to the Japanese economy. Those three arrows were, of course, fiscal stimulus, monetary easing, and structural reform.

By general consensus, the first two arrows of Abenomics hit their mark, at least in the short term. More government spending led to better economic growth rates; and under the leadership of Haruhiko Kuroda, Prime Minister Shinzo Abe’s key ally at the Bank of Japan, monetary easing had a dramatic effect, taking the Yen from roughly the 80 level versus the US Dollar to the 120 level, and thus making Japanese exports more price competitive in the international market.

Economists have had a much less enthusiastic assessment of the Abe administration’s performance on structural reform. Some say there was hardly any substantial progress at all, while others have a more generous assessment, saying that in a low-key fashion many small reforms were enacted and they were helpful. Both wings of that debate, however, would agree that there was no symbolic centerpiece of the structural reform efforts that could be compared, for example, with former Prime Minister Junichiro Koizumi’s quest to privatize Japan Post.

At any rate, two years on from the unveiling of Abenomics, it is clear enough that it didn’t achieve what it had originally advertized.

Fiscal stimulus and monetary easing were meant to inflate the economy, covering many of the short-term deflationary effects that could be expected to result from serious structural reforms. In fact, however, the inflationary boost was not spent to cover such reforms, but rather to mitigate the worst effects of raising the consumption tax from 5% to 8% in April 2014. The structural reforms, if they really occurred at all, were both relatively modest and came too late in the process.

Put another way, if an economist were to look back several years from now to assess whether or not the theories behind Abenomics were a success or a failure in the case of Japan from 2013-2015, probably the only possible verdict would be that Abenomics never happened—that what was implemented did not match the original concept, since the third arrow was either missing or at much too indistinct. And even if Prime Minister Shinzo Abe gets busy today with serious structural reforms it would be too late to test the theories of Abenomics as the whole point was to fire the three arrows simultaneously.

But if the era of Abenomics never really happened, then how can we declare that it is now ending, two years later?

This refers to a different Abenomics—not the economic theory but the political campaign. Shinzo Abe himself has always been a politician and not an economist, and although his desire to create an economically “strong” Japan is sincere, it is the political effects that weigh most heavily in his own imagination.

In this political sense, Abenomics was a great success. It was the clearest reflection of the basic lesson that Shinzo Abe learned from his first, failed administration in 2006-2007. He came to understand that the Japanese general public did not share his personal priority of “ending the postwar political regime,” but was instead much more concerned with mundane pocketbook issues like jobs and food on the table. Abenomics’ promises were exactly what the Japanese public wanted to hear, and they rewarded Shinzo Abe with high approval ratings.

The political capital Abe gained from Abenomics was spent on achieving his lifelong dreams of reshaping Japanese security policy and education, or, in other words, to end the postwar political regime.

By the summer of 2015, Shinzo Abe seems no longer able to disguise his lack of genuine interest in “political Abenomics” and instead is focused almost obsessively on using all of his remaining energy on pushing the “Legislation for Peace and Security” through the Diet.

Abe probably has enough remaining political strength to succeed in his immediate objective, though it may very well bring about a much earlier end to his administration than otherwise would have been the case. Now the prospect of Shinzo Abe stepping down in September is a very real one, though under normal circumstances, if he would take a less aggressive approach, he could probably stay in office for another two or three years.

A comparison might therefore be made between “economic Abenomics” which spent most of its inflationary capital on absorbing the effects of the consumption tax hike, with “political Abenomics” whose capital is being spent on loosening the legal restraints on the deployment and use of Japanese military force.

At any rate, both aspects of Abenomics—the economic and the political—are now expiring: Abenomics is dying.

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