Although Prime Minister Shinzo Abe is quick to trumpet that his reflationary “Abenomics” program will be the biggest issue in the general election, poor households and rural residents remain frustrated by the uneven way in which its benefits are trickling down.
Since launching his administration about two years ago, Abe has been trying to create a virtuous economic cycle in which a recovery in corporate earnings leads to improved employment, higher wages and stronger consumption.
However, before the Dec. 14 House of Representatives election, critics say Abe’s bid to create such a cycle is only half complete, with measures that favor the rich and big firms showing their limited effectiveness.
Abenomics, which helped Abe’s Liberal Democratic Party win the 2012 Lower House election and march back into power, is based on the so-called “trickle down” theory, which suggests that greater spending by large companies and the wealthy can revitalize the economy as the benefits trickle down to small firms and low-income earners.
Abe has been advocating radical monetary easing, “flexible” fiscal spending and structural reforms to boost growth as the “three arrows” of the Abenomics program.
But only the fiscal monetary easing parts of the equation seem to be in action, resulting in a temporary boost in corporate earnings until the elusive reforms can stabilize them.
In April 2013, soon after Haruhiko Kuroda was hastily named governor of the Bank of Japan, the central bank decided to launch quantitative monetary easing on an unprecedented scale, flooding the money market with funds by gobbling up of huge amounts of government bonds.
On the back of the widening interest rate gap between Japan and the United States, currency traders stepped up yen selling and dollar buying, pushing up the U.S. currency by over ¥30 from the launch of Abe’s administration in December 2012, when the dollar stood at around ¥85.
According to a Jiji Press tally, Japanese firms listed on the first section of the Tokyo Stock Exchange enjoyed a 14 percent year-on-year jump in combined pretax profits between April-September this year, with exporters’ earnings inflated by the yen’s rapid weakening.
During “shunto” labor-management wage talks last spring, over 90 percent of big firms accepted minimal pay hikes.
Abe’s steps to boost growth have given preferential treatment to companies, including corporate tax reduction.
“Big firms, their employees and stock owners are the only ones who have enjoyed the benefits” of Abenomics, a senior government official says.
Observers say the recovery does not seem real for small companies, low-income earners and residents in areas other than big cities.
The hollowing out of the manufacturing industry is one reason many Japanese people have yet to feel the effects of the trickle-down policy, said economist Kenji Yumoto.
Since many automakers and electronics makers have moved production overseas, the yen’s drop does not necessarily boost export volume, although it lifts the value of export earnings in yen terms.
The conventional mechanism of an economic recovery driven by exports on the back of the yen’s weakening is no longer functioning, says Yumoto, vice chairman of the Japan Research Institute.
With real wages remaining on the decline, low-income earners are focused on protecting their livelihood and are putting the brakes on spending.
Although Abe says Abenomics is the only road forward for Japan, a veteran LDP lawmaker said, “Abenomics has reached a crossroads and needs to be reviewed drastically.”