In 2013, the Prime Minister of Japan, Shinzo Abe, implemented an audacious economic incentive aimed at spurring the country out of its decades-long deflationary slump. Japan, having fought deflation for approximately two decades, has often pursued governmental interventions to revitalize its economy (Aramaki 3). Prime Minister Abe implemented what he referred to as a three-pronged approach, dubbed Abenomics, fiscal expansion, monetary easing, and structural reforms.
After more than four years of the program, the country witnessed moderate growth. However, even as Abe won another term in the 2017 snap elections, there is not much to write home about. Economic growth remains tepid, inflation remains below target, and concerns over debt and structural reforms continue. The election of the US president and the consequential withdrawal of President Trump from the Trans-Pacific Partnership has complicated the equation for Japan’s economic prospects. The implementation of the program realized minimal success.
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For instance, the nominal GDP grew from 495 to 353 trillion yen for the fiscal 2012-2015 fiscal duration (De Michelis 67). Annual corporate ordinary profits further increased by 20 trillion yen for the 2012-2015 fiscal year. Equally, Japan’s rate of unemployed declined from 4.3% witnessed in 2012 to 3.1% in 2015 (Hausman and Wieland 22). The core CPI further improved by 3.0% for the 2012-2016 period and continues to gain speed.
However, concerns are being raised about the failure of the program as the country’s economy continues to challenge Abenomics. For instance, the economy of Japan contracted by 1.4% during the fourth quarter of 2015, raising questions about the efficacy of the program. The economic growth of the country remains fragile and highly unstable, domestic consumption is still sluggish, exports are dependent on the boost provided by a weaker yen, the population is aging, and the stock markets remain highly volatile (Hoshi 149). As a result of these initiatives, various economists indicate that there has been a continuing downward trend of a weaker yen. The weakening of yen has been problematic to the country’s foreign exchange and international trade. This is against the expectation of the program.
Abenomics further increased the prospects of borrowing for massive infrastructure. Shinzo Abe believed that the country should move from old infrastructure to modern infrastructure, including bridges and roads that could withstand the pervasive problem of earthquakes (). Subsequently, he proposed massive borrowing as a way of realizing these highly ambitious programs. Oguro, a professor of economics at Hosei University in a public policy review paper, indicates that Japan’s government debt as a percentage of its GDP has exceeded 200% due massive borrowing and the country’s aging population with a falling birth rate (Oguro 303). The debt, as a percentage of GDP, surpassed the prewar peak that caused massive inflation in the years immediately after the end of World War II. This is attributable to several factors, including the swelling social security costs per year, chronic financial deficits.
The withdrawal of President Trump from the TPP further compromises the success of Abenomics. The TPP was a free trade agreement between Japan and the U.S. and 11 other Pacific Rim Countries. In 2014, Abe reached a breakthrough agreement to limit the power of the national agriculture cooperative, JA-Zenchu. The cooperative has long used its political heft as a way of thwarting modern reforms to Japan’s agricultural sector. The agricultural industry further lobbied against TPP, rejecting the removal of high tariffs and other protective measures.
Various economists argue that Trump’s rejection of TPP will subsequently complicate Abe’s prospects of seamless economic development. Instead of the TPP, President Trump is seeking for deeper bilateral relations between Japan and the U.S., which could put pressure on Abe to consent to even deeper tariff cuts and extensive reforms, not only in agriculture but also on contentious issues such motor vehicles and intellectual property. Abe’s government consequently declined the invitation of the White House to resume talks.
The ability of the Abenomics to reinvigorate the economy of Japan is still in limbo. Abe took power in 2012, and subsequently, in 2017, however, the prospects of a robust GDP, wage growth, and inflation have all remained elusive. For instance, in December 2017, more than four years after the implementation of the program, the rate of inflation was still 1%, significantly below the 2% target that was touted by the program. Economic growth has further been resilient; the GDP expanded at an annualized rate of 0.5% in the fourth quarter of 2017. Some economic factors underpinning the recent modest economic growth is the demand for Japanese high-tech electronics. Turning to robotics has helped the economy handle its acute labor shortage by boosting productivity (Yoshino and Taghizadeh-Hesary 37).
In conclusion, Japan’s initial optimism following the implementation of Abenomics resulted in increased consumer confidence and financial market gains. However, the success of this ambitious strategy was short-lived, and the ‘three arrow strategy’ failed to achieve its intended purpose. The countries GDP continues to seesaw between positive and negative territory, keeping policymakers on toes. For the 2012-2014 period, Japan significantly kept the value of yen down against the dollar, helping it prop up its exports. Abenomics has failed to live to the occasion, as seen in the recent adoption of negative interest rate policy, a way of making big corporations put liquidity into circulation via better wages and investor dividends. Several factors could have thwarted the prospects of Abenomics, such as heavy borrowing, the spiraling social security costs, the withdrawal of the U.S. from the TPP, among other indicators.
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