BELFAST, NORTHERN IRELAND – Prime Minister Shinzo Abe, by pitching his economic policies to his fellow leaders at the Group of Eight summit in Northern Ireland, has put himself in a bind with the need to show a blueprint for achieving both growth and fiscal rehabilitation.
The just-completed summit at the Lough Erne golf resort near Enniskillen was, first and foremost, the place for Abe to explain to his G-8 colleagues his policies aimed at ending nearly two decades of deflation and reviving the economy, and in doing so, to make his policies, dubbed “Abenomics,” an international commitment.
Speaking at a news conference in Belfast after returning from the summit, Abe said late Tuesday that his economic policy received “high expectations and high marks” from the leaders of Britain, Canada, France, Germany, Italy, the United States and Russia.
That indeed appears to have been the case, with other G-8 leaders largely welcoming Abenomics during the annual gathering, including during separate bilateral talks.
Meeting with Abe, Canadian Prime Minister Stephen Harper said he hopes the economic program, consisting of the “three arrows” of aggressive monetary easing, large fiscal spending and a growth strategy centered on deregulation and tax breaks to spur business investment, will succeed.
Italian Prime Minister Enrico Letta, in a separate meeting with Abe, went so far as to say that Rome wants to emulate Tokyo as a good example of economic revival.
Interest among G-8 nations in Abenomics was evident from the beginning, as Britain, holding the presidency of the G-8 this year, “asked us to provide a meticulous explanation” about the policies at the summit, a Japanese official said.
Having just come away from the sovereign debt crisis in the 17-nation eurozone and the so-called fiscal cliff of tax hikes and spending cuts in the United States, it was perhaps not surprising that G-8 leaders were eager to see in Japan a model for ensuring growth and employment.
That is because in some G-8 countries, such as Italy and France, the economy is forecast to shrink this year. And in Italy, unemployment among people aged between 15 and 24 has reached a whopping 40 percent.
In contrast, Japan’s economy grew at an annualized rate of 4.1 percent in inflation-adjusted terms during the first three months of this year, and it is expected to grow at the fastest pace among G-8 nations this year after the United States and Russia. Japan’s unemployment rate is one of the lowest in the G-8, as well.
Despite the positive feedback from some G-8 leaders, such reactions were far from unanimous. In particular, Chancellor Angela Merkel of Germany, whose export industry competes directly with that of Japan, had sharper words.
During her face-to-face meeting with Abe, Merkel, who has previously expressed caution over the potential fallout from the weak yen, indicated her frustration with the yen’s sharp depreciation against other major currencies underpinned by the Bank of Japan’s credit-easing policy.
She also urged Tokyo to make efforts to rehabilitate its finances, taking note of Japan’s huge fiscal debt, according to a Japanese official.
During a summit session on the global economy, one G-8 leader expressed concerns about Japan’s monetary easing steps, pointing to the danger of the competitive currency devaluations they could set off, another Japanese official said, without identifying the speaker.
Besides the perceived need for additional steps to keep market confidence in his ability to create growth, Abe has now been called on in Tuesday’s G-8 communique to define a “credible medium-term fiscal plan” that would lay out a path toward fiscal rehabilitation.
Having made his Abenomics policies an international commitment at the summit, the prime minister needs to show the fruits of his initiative as soon as possible, said Tatsuhiko Yoshizaki, chief economist at Sojitz Research Institute.
“He needs to show one example, with which he could say, ‘I’ve done it already,’ no matter how small it may be,” Yoshizaki said, citing a relaxation in visa requirements as a relatively easy way to produce an economic outcome.
But Yoshizaki, who sees Abe’s policies as boiling down to “appeals to people’s expectations,” said the prime minister still needs to unveil additional “arrows” to spur growth, while noting that he would have an easier time implementing deregulatory measures after the Upper House election next month.
Reflecting on Abe’s performance at the G-8 and the importance of fulfilling the commitment the prime minister made before his G-8 peers, a Japanese source said: “It’s been a long time since a Japanese prime minister caught any attention even if just in the economic area. Although he may not feel he’s accomplished a lot, it’s important to work on issues squarely.”