Tokyo: The weakest yen in decades, a mountain of national debt and a giant central bank bond portfolio that’s around half the size of the Japanese government securities market.
The legacy of Abenomics will continue long beyond the life of its architect, former Prime Minister Shinzo Abe, who died after a shooting on Friday.
On the plus side, companies logged record profits, shareholder returns climbed and wages went up. More women and seniors entered the labor market, and at one point, the ratio of available jobs to applicants reached a four-decade high. Japan’s 2.6 per cent unemployment rate is a figure most advanced economies can only dream of.
The complicated fallout of Abe’s audacious growth program, both good and bad, continues to ripple through markets and the economy. It is also tinged with irony. One of its key goals was to achieve stable price gains, but when 2 per cent growth was reached earlier this year, it was deemed to be the wrong kind of inflation.
“While Abenomics fell short, ultimately, of its goal to deliver sustained reflation, it still prompted important changes,” said Fred Neumann, chief Asia economist at HSBC Holdings. “After years of deflation and stalled growth, Abenomics amounted to a bold attempt to shake the economy loose and put it back on the path of sustained growth.”
The birth of Abenomics
Abe swept into office in late 2012 promising to restore momentum in Japan with a “three-arrowed” approach of monetary easing, flexible spending and regulatory reforms. He was confronting an economy that had yet to fully recover from the global financial crisis and the blow of a devastating 2011 earthquake and tsunami. Manufacturing was getting hollowed out by a super-strong yen, trading past 80 per dollar. Deflation seemed entrenched.
Abe oversaw a wholesale revamp of the BOJ, which went on to buy government bonds at a scale that dwarfed counterparts abroad. The yen tumbled, manufacturing stabilized, and deflation effectively ended. Japan’s gross domestic product hit a record high.
Companies were prodded to improve governance and returns to shareholders while lifting pay for workers.
Abe also championed “womenomics,” calling for an increased role for women in the workforce. Female labor participation did increase, even though a goal to put women in 30 per cent of leadership positions went unmet.
“One could see how women and older workers have been encouraged to enter and return to the labor force - this has helped deal with the hostile demographic trend in Japan,” said Stephen Jen, CEO of Eurizon SLJ Capital. “All of the above are lessons for much of the rest of the world.”
Tourism was another focus, as Abe sought to encourage fresh sources of spending in the face of a shrinking domestic population. Reforms including relaxed visa requirements helped to almost quadruple the number of foreign visitors, to nearly 32 million a year before the pandemic hit. The 2020 Tokyo Olympics were set to be a crowning achievement before Covid-19 interfered.
Critics blame a 2014 sales-tax increase for arresting momentum the economy was just beginning to build. Employers also failed to embrace the scale of wage increases that policy makers wanted. The third arrow of Abenomics was supposed to boost productivity through sweeping structural reforms but never quite materialized.
News ways of taming inflation
And inflation has never reached, on a sustained basis, the 2 per cent goal the Abe administration had agreed on with the BOJ in an historic pact in early 2013. Instead, surging energy costs and the weakening yen’s hit to household purchasing power are undermining support in some quarters for that same inflation target.
“The rusty wheels of the economy began to move for the first time in a long while - but they never quite recovered full momentum,” said Shinichiro Kobayashi of Mitsubishi UFJ Research & Consulting. “Abenomics revealed how deeply rooted Japan’s economic problems are and how hard it is to solve them.”
At the same time, many around the world give Abe credit for implementing a bold change in policy that set ambitious goals. American economic luminaries Paul Krugman and Lawrence Summers - who’ve disagreed sharply with each other on US economic policy - had a similar assessment Friday of Abe’s economic project.