Former Japan Prime Minister Shinzo Abe, who was assassinated recently, wanted to transform the country’s economy.
Shinzo Abe was Japan’s longest-serving Prime Minister before he decided to step down in 2020.
The most spoken-about initiative of Abe was “Abenomics”, the programme that bears his name.
Major reforms and stimulus measures taken through his policy did revive the third largest economy in the world, but it still fell short of the result it was expected to achieve.
Abe took charge as the Japanese PM during a time when the country was facing a recession. Thanks to his ‘Abenomics’ policy the Asian powerhouse witnessed growth during his first term.
But in 2020, the late leader’s measures to revive Japan’s economy faced an uphill challenge. In addition, other factors also raised questions about the efficacy of the policy.
What Was Abenomics?
The policies that Abe started implementing in 2012 were his most well-known economic initiative, which was branded “Abenomics”.
His goal was to use the so-called three “arrows” of Abenomics to revive Japan’s economy after two decades of stagnation.
Monetary Policy: Negative short-term interest rates are part of Japan’s hyper-accommodative monetary policy, which was implemented to lower the cost of borrowing and spending for individuals and businesses.
Fiscal Stimulus: Pumping money into the economy entails increasing government spending on infrastructure or providing companies with financial incentives like tax reductions.
Structural Reforms: To reduce labour pressures and boost economic growth, firms should reform their business practices, increase the number of women in the workforce, liberalise the labour market, and give more job opportunities to migrants.
Abenomics: What worked & what didn’t
During an interaction with TIME, Koichi Hamada, one of Abe’s former economic advisers said, “Abe injected hope into the Japanese economy. Poor villages disappeared, university teachers were not worried about the employment opportunities of their students, and so forth, because of Abenomics.”
Mireya Solis, director of the Center for East Asia Policy Studies at the Brookings Institution, said, “The program represented a major new attempt for Japan. He tried to revive the Japanese economy, and there were some successes there.”
Hamada stated that Abenomics was very successful in creating jobs and promoting equality between temporary workers and regular workers.
“There was a strong distinction between the two. Since only regular employees could get stable employment with higher wages,” Hamada said.
But he also pointed out that Abenomics gave opportunities for temporary workers to get employment, and as a result of which many firms began to hire non-regular and temporary workers.
Hamada stated that the policy’s effect is felt even today in the country — 47 percent of foreign employees in full-time roles were categorized as “non-regular staff” in a 2021 government study of the pay structure in Japan, such as contract or temporary workers.
“It put many more people to work and because of the shortage of human resources, firms started to invest domestically instead of abroad,” Hamada added.
But, Solis, who differed from Hamada’s views said, “The idea was to have this principle of equal pay for equal work, regardless of whether you were a regular or non-regular worker, and to increase wages. But wages are still stagnant for non-regular workers, and people are feeling the effects in their wallets.”
Although not at the same rate as Japan had experienced during its post-war boom, Abenomics did contribute to growth. The economy is still far lower than the 2020 objective of 600 trillion yen established by Abe’s administration.
But many analysts gave Abe credit for making the country more resilient to economic shocks like the pandemic than when he took office nearly eight years earlier as he was leaving office.
Japan PM Fumio Kishida questions Shinzo Abe’s economic policies
Japanese PM Fumio Kishida questioned Abe’s economic policies in January of last year. Speaking at the virtual Davos Agenda conference of the World Economic Forum, Kishida asserted that the massive fiscal and monetary stimulus measures were insufficient to build a sustainable and inclusive economy.
Kishida introduced his own “new capitalism” early in his administration, a package of measures intended to narrow the income gaps that Abenomics is blamed for creating. The business community in Japan has since voiced strong opposition to Kishida’s plan.
Talking to Financial Times, Kishida said, “Abenomics clearly delivered results in terms of gross domestic product, corporate earnings, and employment. But it failed to reach the point of creating a ‘virtuous cycle’. I want to achieve a virtuous economic cycle by raising the incomes of not just a certain segment, but a broader range of people to trigger consumption. I believe that’s the key to how the new form of capitalism is going to be different from the past.”
‘Abenomics was an important step forward’
Ward said, “Abe didn’t put as much effort in structural reform. Labor market reform, gender equality, and perhaps some industrial reform, are difficult for any country politically. His battle was more around security reform and being diplomatically active outside Japan.”
According to a survey done in 2021 by the Japanese news agency Jiji Press, 62.5 percent of citizens in Japan want Kishida to reconsider Abenomics, while just 14.7% believe their nation should continue with Abe’s economic plan.
According to experts, Abenomics supported growth at the time of crisis and improved the nation’s ability to handle economic shocks compared to when Abe assumed office. The Nikkei 225 index rose to highs it had never witnessed in more than two decades, reaching above 20,000 in April 2015 from a low of approximately 9,000 in 2012. This was an indication of the favourable initial market response to the reforms. However, Abe’s strategy appeared to lose favour after 2020, when COVID-19 ruined global markets and Japan almost fell back into a recession.
Solis said, “Even though Abenomics did not achieve all of its goals, it was an important step forward. There was progress. Not all of his initiatives were novel ideas. But he was the one that was able to see them through, largely because of the political stability that he brought.”
The Japanese policy was tarnished by continuous political turmoil and the incapability to pass long-term reform. Between 1987 and 2012, the PM’s chair was occupied by 18 different leaders, but it was Abe who managed to create a positive impact with his policies. This is one of the major reasons why he was able to hold on to the PM seat for a longer duration than any other leader in the country’s history.
The economic legacy of Shinzo Abe
Abe’s economic policy was questioned when the recession hit Japan in early 2020.
In addition, Abe also faced heat for how he handled the COVID pandemic in the country. He rooted for domestic tourism which rivals said was the major contributing factor to the resurgence of coronavirus infections in Japan.
Critics also claim that Abenomics failed to deliver what it had promised such as giving more voice to women in the workforce, changing unhealthy work cultures, and tackling nepotism.
However, Bank of Japan Governor Haruhiko Kuroda said that the slain leader had contributed so much towards “pulling Japan out of prolonged deflation and achieving sustained economic growth”.
He added that he wanted to “express sincere respect for Abe’s strong leadership and contribution to Japan’s economic development”.
Shinzo Abe’s death could see Japan shift away from Abenomics
While it is doubtful that Abe’s legacy will be challenged in the near future, Prime Minister Fumio Kishida may eventually be able to gradually reduce Abe’s government spending and monetary stimulation.
Analysts claim that since Abe commanded the largest faction in Kishida’s Liberal Democratic Party (LDP) when he stepped down as premier in 2020, Kishida is unlikely to take any rapid action that may enrage lawmakers who support him.
However, in the end, his absence and the LDP’s recent triumph, which was boosted by sympathy votes following Abe’s passing, may offer Kishida the political capital to alter the LDP’s trajectory.
In the election, Kishida’s LDP-led conservative coalition was expected to extend its majority in the upper chamber two days after Abe’s assassination.
According to those close to Kishida, the PM and his advisers planned to gradually wind down the Abenomics experiment, which was started nearly ten years ago, and proceed toward normalizing fiscal and monetary policies.
Speaking to ABC, SMBC Nikko Securities’ senior economist Koya Miyamae said, “There likely won’t be a quick reversal of Abenomics, or an exit from ultra-loose monetary policy. In the long run, however, the Bank of Japan must consider some form of a tweak to its monetary policy, given problems such as the weak yen. That will mean former or incumbent Bank of Japan executives will remain strong candidates as next central bank governor.”
Kishida — who belongs to a smaller LDP faction — remained under pressure from Abe and his supporters to maintain massive stimulus and choose a reflationist dove as the next Bank of Japan governor in April.
Abe’s absence could change the balance of power within the party, diminishing the influence of advocates of big government spending and ultra-loose central bank policies.
Daiju Aoki, UBS Sumi Trust Wealth Management’s chief Japan economist, said, “Abe led a group of reflationist-minded ruling party lawmakers favouring big spending, so his absence will have a huge impact on the party’s power balance.”
‘World will study Abenomics’: Larry Summers
According to Lawrence Summers, former US Treasury Secretary, policymakers in developed countries will examine the legacy of Abenomics, a framework he defined as an aggressive effort to confront the problems of economic stagnation.
Speaking to Bloomberg, Larry Summers said, “Abenomics will be remembered as one of the more aggressive and successful reprogrammings of macroeconomic strategy that we’ve seen in a long time.”
“It was a success by the standards of what had come before. But it was not a fully ‘mission accomplished in terms of what was happening in Japan,” he added.
Describing Abenomics, Larry pointed out that the programme is having “radically expansionary policy both on the fiscal and on the monetary side, and with structural policies like major efforts to get women working and enfranchised in the labour force.”
According to the former Treasury secretary, Abenomics will be analyzed by others if, after the current inflationary episode, there is a return of what is known as secular stagnation, where the savings pool is so great relative to the available investment opportunities that it drives down interest rates and ultimately growth.
“If secular stagnation does recur in Europe and in the United States, then I think that Abenomics legacy will be studied very, very carefully – because, in some sense, Japan was the first to experience the challenge of demographic contraction and of excess saving,” Larry concluded.