Is this what Prime Minister Shinzo Abe meant when he pledged to "rev up the engine of Abenomics to the limit"? The government this week approved a new ¥28 trillion stimulus package — the largest in a series of economic measures taken since Abe returned to the helm of government in late 2012. But the sheer size of the latest package — reportedly inflated due to pressure from Liberal Democratic Party lawmakers riding the wave of the ruling coalition's victory in the Upper House election last month — will not guarantee results. Fresh fiscal spending by national and local governments combined will come to ¥7.5 trillion, including that which will be paid for in fiscal 2017 and even later. The rest will come from low-interest loans of government-procured funds and private-sector spending to be generated by the stimulus.
The re-emphasis on large-scale stimulus measures may reflect a shift in the focus of Abe's economic policy away from monetary easing by the Bank of Japan, whose massive asset purchase program may be nearing its limits after more than three years. The BOJ's monetary "bazooka" under Gov. Haruhiko Kuroda since 2013 pushed down the yen's exchange rate against the dollar, thereby pushing up earnings of major companies and driving up share prices. But the yen's upturn in recent months — along with uncertainties over global slowdowns — has cast a shadow over corporate profits. The latest additional easing steps announced by the central last week are said to have disappointed the market as too little.
But the package seems to contain little in terms of structural reforms to generate new avenues of economic growth — one of the original "three arrows" of Abenomics, along with the BOJ's monetary easing and the government's aggressive fiscal spending, where not much has been achieved yet. It also features few fresh measures to address the problems behind the continuing slump in consumer spending, which accounts for 60 percent of the economy. The administration's claim that the latest measures will push up the nation's gross domestic product by 1.3 percent remains to be tested.