Abenomics took Japan and the rest of the world by storm. But today Abenomics seems more like a mirage than a miracle cure.
Abenomics took Japan and the rest of the world by storm, with the promise that two lost decades of economic morosity and lack of political leadership had come to an end.
But today Abenomics seems more like a mirage than a miracle cure. Economic growth, investment and exports are faltering. The trade deficit is widening. The stock market has lost momentum, recording a sharp fall in the first quarter of 2014. Consumer confidence is fading. The only positive sign is the movement out of deflation into modest inflation.
Since the bursting of Japan’s bubble economy over two decades ago, Asia’s original miracle economy has stagnated, and experienced almost every possible economic ill.
Weak growth. Deflation. Government debt piling up. Income inequality. Informalization of the job market. Hollowing out of a once-proud manufacturing dynamo. Declining competitiveness vis-a-via Korea, Taiwan and China.
A loss of self confidence and sense of hopelessness has been an unavoidable consequence. This has inspired a resurgence of Japan’s extreme right-wing. And this has certainly encouraged China to seize every pretext to bully Japan.
When Shinzo Abe returned to Japan’s leadership a little over a year ago, it was by default, after the clumsy performance of the previous Democratic Party of Japan (left wing) administration.
But the advent of “Abenomics” provided an unexpected boost to a Japan that was looking for hope. Abenomics promised a revitalisation of the Japanese economy through expansionary monetary policy (“quantitative easing”), fiscal stimulus, and structural reform — the “three arrows” of Abenomics.
Monetary expansion is designed to cure deflation (falling prices) which hold consumers back from spending money, and return inflation to 2% by 2015 — an inflation rate which hasn’t been seen since 1991. Its impact as been rapid — prices are moving up, the stock market rallied driven by foreign capital, and the yen depreciated boosting exporters profits and competitiveness.
