Weighing the impact of ‘Abenomics’

Prime Minister Shinzo Abe emphasizes that his economic policies have created more than 1 million jobs and enabled the highest pay increases in 15 years. Share prices have surged more than 70 percent since he returned to the government’s helm in December 2012. Still, people have suffered net declines in their wages for 16 months in a row as prices rose faster than the pay hikes. As much as 84 percent of the respondents in the latest Kyodo News survey say they do not feel the economy has improved in the two years of the Abe administration.

Such gaps illustrate the mixed picture of the economy as the official campaign kicked off for the Dec. 14 general election following the prime minister’s dissolution of the Lower House to “ask voters for their verdict” on “Abenomics.” Indeed, voters should stop and think about how the prime minister’s economic policies have impacted their standard of living.

Despite his controversial and often divisive political agenda, Abe has enjoyed relatively strong popular support for his administration on the strength of the economic uptrend, which has been losing steam since the consumption tax hike in April. The election comes right on the heels of recent data showing the economy has shrunk for two consecutive quarters. Popular disapproval of Abe’s Cabinet exceeded support for the first time in the Kyodo poll, even though his Liberal Democratic Party remains far ahead of any of the opposition parties in popular support.

After being swept back into power by the LDP’s election victory two years ago, Abe pledged to end the deflation that had gripped the nation since the 1990s. Dubbed the “first arrow” of Abenomics, the massive monetary stimulus taken by the Bank of Japan — with a target set to achieve a 2 percent annual inflation — has pushed down the yen’s value against the dollar by roughly 40 percent. The yen’s steep fall pushed up the earnings of globally-operating large firms to record levels, and the surging share prices boosted the assets of wealthy consumers.

But such benefits do not appear to have trickled down to the broader segments of the economy. The rise in exports have not kept pace with the yen’s fall as many firms had already shifted their production overseas, while the weaker yen meant higher import costs for many of the small and medium-size businesses. While the Abe administration put unusual pressures on companies to translate their increased profits to wage hikes for their workers, pay raises have been outpaced by rising prices due to the weak yen and, beginning in April, the consumption tax hike. People’s net wages in October fell 2.8 percent from a year earlier for the 16th consecutive monthly fall. Consumer spending, which accounts for 60 percent of Japan’s gross domestic product, has fallen for the seventh month in a row since April.

As claimed by the prime minister and the LDP, the number of people on payrolls has increased by 1.3 million since January 2013. The jobless rate of 3.5 percent in October is the lowest in 16 years, while the ratio of job offers to job seekers is the highest in 22 years. Still, much of the demand is for members of the low-paying irregular labor force. The number of irregular workers such as part-timers and temporary dispatch workers has increased by more than 1.4 million under Abe’s watch while that of regular full-time employees has declined. The opposition Democratic Party of Japan says such data is evidence that Abenomics is widening the nation’s rich-poor gap.

The Abe administration has taken a pro-business approach in its economic policies, including its pledge to cut corporate tax rates to enhance the international competitiveness of Japanese firms. It assumes that improved corporate earnings will lead to higher wages for workers, creating a virtuous cycle of increased consumer spending and more business investments.

BOJ Gov. Haruhiko Kuroda — who was handpicked by Abe to launch the first arrow — admits that the impact of the yen’s fall and higher prices differ among businesses and consumers, and says the benefits of the weak yen and end of deflation will be shared by broad sectors of the economy when major firms use their improved earnings to invest in boosting their output. It remains to be seen if this will happen in a timely manner given the nation’s changing industrial structures.

Meanwhile Abe has introduced trillions of yen in supplementary budgets each year as the “second arrow” of his economic policies to shore up demand. With the economy losing steam, his administration reportedly plans to compile another extra spending package to the tune of ¥3 trillion for the current fiscal year. The effects of this fiscal stimulus, however, appear to be waning as the implementation of public works projects become delayed by manpower shortages in the construction sector. And his “third arrow” growth strategy — which is supposed to generate new demand and increase the nation’s growth potential through structural reforms — has yet to produce a visible impact on the economy.

The prime minister says he is postponing the second phase of the consumption tax hike, originally scheduled for October 2015, by 18 months to avoid endangering the effort to end deflation. He says his policies have produced results and insists that a virtuous cycle of the economy is finally about to begin. While the opposition camp charges the current economic condition that forced him to delay the tax hike is proof of Abenomics’ failure, Abe has dared his critics to present concrete alternatives to revive the economy.

The DPJ campaign promises a “flexible monetary policy,” investments in human resources such as child-rearing support and “growth strategy for the future,” but how this differs from Abe’s policies remains vague, and the its pledge to revive the nation’s middle class appears short on specifics. Ishin no To (Japan Innovation Party) says Abe has not done enough to fight vested interests and calls for a “thorough competition policy” through full-scale deregulation.

To present voters with a genuine choice at the polls, the opposition parties need to move beyond mere attacks on Abenomics and flesh out their own economic policy proposals.

  • rossdorn

    Brilliant !

    “To present voters with a genuine choice at the polls, the opposition
    parties need to flesh out their own economic policy proposals.”

    If you ask them, they will in return ask: “What is an “economic policy proposal”?

    Japan has less and less products to offer to the world.
    And the cheap crap will be bought from China. Dream on, Japan.

  • boonteetan

    Abenomics has not achieved its goal as intended, Japan’s economy remains stagnant and lethargic. The awesome rise of stock markets could mainly be due to the scary drop of Yen against Dollar (118 to 1 now). Abe wants an early election to secure a new mandate for his premiership, knowing too well that the weak opposition is unable to turn the tide. The question is: How much can he actually do in the next 4 years?
    (vzc1943, btt1943)

  • Dipak Bose

    Abe economics have failed because Abe`s economic advisers either Yale educated or Ministry of Finance officers have only copied the US programme without any thought about what has cause such a prolonged depression since 1993.
    Rather than giving away money to the banks, if Abe would have started a economic revival plan to reinvest it could have created more jobs.