Once again, Prime Minister Shinzo Abe says he is seeking a public vote of confidence in his trademark economic policies. The opposition camp charges that the state of Japan’s economy illustrates the failure of Abenomics. Abe claims otherwise — though he admits that his economic policies are still halfway to achieving his administration’s pledge to pull Japan out of deflation — and dares the opposition to come up with an alternative instead of just criticizing him.
Just as he did when he held a snap election for the Lower House in December 2014, Abe postponed the planned hike in the consumption tax to 10 percent — this time by 30 months — ahead of the July 10 Upper House race, for which the official 18-day campaign kicked off Wednesday. He claims Abenomics is making steady progress and producing results, citing increased tax revenue and the tightest labor demand in nearly a quarter century, but says he’s delaying the tax hike to prevent the global economic slowdown from derailing his bid to bust deflation in Japan. The opposition charges that Abe having to postpone the tax hike for the second time — a decision predictably popular among voters — is proof that his economic policies aren’t working.
Abe’s Liberal Democratic Party-Komeito ruling alliance has won landslide victories in all nationwide elections since the coalition returned to power in 2012. His administration remains relatively popular in its fourth year, and the public’s support has often been attributed to the upward trend of the economy. But as half of the 242 Upper House seats come up for grabs in the triennial election, Japan’s economic growth remains fragile and uneven, and popular skepticism of the benefits of Abenomics seems as strong as ever.
Voters should indeed respond to Abe’s calls and take stock of what Abenomics has brought in its 3½ years — and assess the viability of what he says his administration will be doing going forward — as they go to the polls next month. They should not be swayed by the prime minister’s “Abenomics or else” rhetoric and instead should see through the political talk and assess the substance of his economic policies.
At the outset of his second stint in power, Abe pledged to bust the nation’s long-running deflation with the “three arrows” of Abenomics — massive monetary easing by the Bank of Japan, aggressive fiscal spending and structural reforms to generate new sources of growth. The BOJ’s “unprecedented” monetary stimulus consisting of massive asset purchases by the central bank sharply pushed down the yen’s foreign exchange rate — from around 80 to as low as 120 to the dollar at one point, which pushed up the profits of major Japanese companies to record levels and drove a rally in share prices in Tokyo.
But the recovery that marked the first year of his new administration was short-lived, The nation’s gross domestic product, which grew 2 percent in real terms in fiscal 2013, shrank 0.9 percent in fiscal 2014 and grew a sluggish 0.8 percent in fiscal 2015. The underlying weakness in consumer spending — particularly since the April 2014 consumption tax hike to 8 percent — dragged down growth, as the cost of living mostly rose faster than wage hikes — which Abe boasts have been the sharpest since the turn of the century. And the reversal of the yen’s downtrend in recent months — with the currency hitting 103-to-the-dollar range last week for the first time since August 2014 — threatens to pare the earnings of export-led major firms that had been inflated by the weak currency.
Abe likes to highlight the increases in tax revenue — which rose by roughly ¥21 trillion from ¥78.7 trillion in fiscal 2012 to ¥99.5 trillion this year for national and local governments combined — as proof that his policies have succeeded in turning the economy around. If the revenue increase from the consumption tax hike from 5 percent to 8 percent is deducted, the tax revenue has yet to recover to the levels before the 2008 Lehman shock. He is confident that even with further delays in the consumption tax hike to 10 percent, which is supposed to help pay for mushrooming social welfare expenses, the “fruits of Abenomics” — namely the increased tax revenue — will cover the cost of bumping up welfare measures that has been promised as part of his perceived shift to a redistribution policy. But there are warnings that continued increases in tax revenue is not guaranteed given the prospect of corporate profits falling in the face of the stronger yen.
He also takes credit for the tightening labor market — in which the ratio of job offers to job seekers hit a 24-year high of 1.34 in April — and the increase in more than a million jobs since he took office. Critics point out that the tight labor demand reflects an increasingly serious manpower shortage, and that much of the increase in jobs have come in low-paying irregular work.
The prime minister keeps saying that Abenomics is the only way forward to revive the economy — and that putting power in the hands of the opposition would send the nation back to the “dark days” of deflation. His prescription for the economy is to “rev up the engine of Abenomics to the maximum.” But many observe that Abenomics — which is supposed to consist of monetary and fiscal measures to lift the economy out of deflation before structural reforms create new avenues of growth — has lopsidedly depended on the BOJ’s monetary stimulus. While the full-throttle efforts by the central bank, which also tapped into the negative interest rate policy this year, appear to be nearing their limit, little has been achieved in deregulation steps to raise the nation’s growth potential amid the rapidly aging and declining population.
“What is most important is to carry out structural reforms to encourage private-sector investments that generate future growth,” Abe said in a news conference earlier this month when he announced his tax decision and set his campaign agenda. He knows what has not been achieved under the 3½ years of Abenomics. He also promises to implement labor reforms, fix the problem of long working hours, adopt “same work, same pay” rules and bump up people’s income to expand domestic demand.
Neither trumpeting Abenomics as if it’s a cure-all or denouncing it as a failure will be constructive. The Upper House election should let voters hand down their judgment.
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