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What’s it: Abenomics refers to the Japanese prime minister’s economic policies, Shinzo Abe. The naming is similar to Obamanomics, proposed by Barack Obama, Clintonomics by Bill Clinton, and Reaganomics by Ronald Reagan.
When Prime Minister Abe took office in 2012, the Japanese economy was still recovering from the 2008-2009 recession after a period of low and even negative growth in the 2000s. Abenomics’ primary objective is to stimulate economic growth and achieve an inflation target of 2% by loosening monetary and fiscal policies, encouraging competition, expanding trade, and correcting structural economic problems.
Abenomics explained
In his second term in office, Prime Minister Shinzo Abe launched various economic policy programs emphasizing monetary easing, fiscal stimulus, and structural reforms. This economic policy package is known as Abenomics.
Through the economic policy easing program, Shinzo Abe expects Japan’s economic growth rate will move up and be more competitive. Understandably, Japan has experienced deflation and stagnant economic growth since the early 1990s following the bursting of the real estate bubble that has been running since the 1980s.
Japan started to adopt quantitative easing by expanding the money supply and keeping interest rates very low. This easing has facilitated economic recovery since 2005, although it has yet to stop deflation.
Immediately after being re-elected in December 2012, Shinzo Abe launched an ambitious economic policy. It combines ultra-loose monetary policy, flexible fiscal policy, and structural reform strategies to encourage private investment. We referred to it as Abenomics.
Monetary policy
The Bank of Japan (BoJ) targets an inflation rate of 2%. To achieve this, BoJ expanded the money supply by adding 60 trillion yen and 70 trillion yen a year. The policy has been running through the purchase of government bonds since October 2013. Japan expects to increase the monetary base to 200 trillion yen by the end of 2013 and 270 trillion yen by the end of 2014.
Also, by expanding the money supply, the central bank hopes to correct the Yen’s excessive appreciation. The increase in the supply of Yen causes the exchange rate to depreciate, making exports more competitive.
Then, on October 31, 2014, the Bank of Japan raised its bond purchase program to 80 trillion yen annually.
In 2016, the Bank of Japan lowered interest rates below zero to increase lending and investment. As of July 2019, the BoJ maintained its short-term interest rate target at -0.1% and the 10-year government bond yield at around 0%.
In 2016, the central bank added other options for its monetary easing program. It increased the outstanding ETF to 6 trillion yen per year. It targeted outstanding Japan real estate investment trusts (J-REITs), the increase of which is around 90 billion yen per year. Furthermore, the central bank pushed the loan program denominated in US dollars to 24 billion USD from the previous 12 billion USD.
Fiscal policy
From the fiscal side, Abenomics emphasized fiscal easing to stimulate demand and consumption. He hopes it will stimulate the Gross Domestic Product (GDP) through the aggregate demand channel.
In 2013, the Japanese government spent 10.3 trillion Yen on infrastructure such as roads and bridges. A year later, it increased the fiscal package by 5.5 trillion yen.
An increase in government spending increases the fiscal deficit. To help finance increased spending, the Japanese government raised the consumption tax rate from 5% to 8% in April 2014 and 10% in October 2015.
Shinzo Abe approved an emergency stimulus package worth 3.5 trillion Yen on December 27, 2014, to boost the recession-hit economy. Furthermore, the Japanese government cut corporate tax rates below the 30% mark in 2016.
Structural reform
Abenomics reformed many regulations to encourage investment in the private sector. Two of the targets are implementing corporate governance and easing restrictions on hiring foreign staff in special economic zones.
Japan faces problems in labor supply. Japan’s birth rate fell by 6%, and it likely lost more than a third of its population during the 2010-2060 period.
To help address a workforce shortage, Abe introduced Abenomics 2.0. That is to increase the Japanese birth rate and increase pensions and social security for the elderly. As part of reforms, Abe’s government spent more than 2 trillion Yen on child care and education. The government has made pre-schooling free for children from low-income families.
Following are some of the structural reforms during the implementation of Abenomics:
- Reducing the wage gap between regular and non-regular workers
- Promotes workforce flexibility
- Free educational programs for low-income households and increased scholarships
- Retraining program
- Sandbox regulation and digital market
- Designation of special national strategic zones to support the implementation of further structural reforms
- Promote international trade agreements such as the Trans-Pacific Partnership in 2018 and the Japan-EU Economic Partnership Agreement in 2019
- Exporting infrastructure services through project financing and public-private partnerships
- Promote tourism, where the number of tourists increased from only 8 million to 32 million. The Japanese government is targeting 60 million tourists in 2030, up from only 8 million in 2012.
- Support for small and medium enterprises and startups
- Reduces administrative costs and provides a one-stop service for foreign investment.
| Indicators | Units | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
| Real GDP | % change | 1.66 | 1.42 | 1.65 | -1.09 | -5.42 | 4.19 | -0.12 | 1.50 | 2.00 | 0.38 | 1.22 | 0.52 | 2.17 | 0.32 | 0.65 |
| Nominal GDP | PPP; international dollars | 4,059.40 | 4,241.64 | 4,427.64 | 4,464.40 | 4,254.78 | 4,484.79 | 4,573.19 | 4,730.59 | 4,909.87 | 5,019.48 | 5,133.76 | 5,213.99 | 5,427.37 | 5,577.57 | 5,711.93 |
| Real GDP per capita | PPP; % change | 1.65 | 1.43 | 1.65 | -1.04 | -5.31 | 4.16 | -0.30 | 1.72 | 2.18 | 0.54 | 1.34 | 0.54 | 2.34 | 0.52 | 0.90 |
| Inflation, average consumer prices | % change | -0.28 | 0.25 | 0.06 | 1.38 | -1.35 | -0.72 | -0.27 | -0.06 | 0.34 | 2.76 | 0.79 | -0.11 | 0.47 | 0.98 | 0.48 |
| % of the total labor force | % change | -0.75 | 0.36 | 0.57 | 1.05 | -2.03 | -0.25 | -0.30 | -0.24 | 1.44 | 2.50 | 0.16 | 0.29 | 0.55 | 0.83 | 0.48 |
| Unemployment rate | % of total labor force | 4.43 | 4.12 | 3.83 | 3.98 | 5.08 | 5.06 | 4.58 | 4.33 | 4.01 | 3.58 | 3.38 | 3.11 | 2.83 | 2.44 | 2.36 |
| General government net lending/borrowing | % of GDP | -4.96 | -3.49 | -3.21 | -4.53 | -10.19 | -9.53 | -9.44 | -8.61 | -7.91 | -5.64 | -3.81 | -3.70 | -3.12 | -2.43 | -2.83 |
| Current account balance | % of GDP | 3.58 | 3.85 | 4.70 | 2.83 | 2.78 | 3.88 | 2.11 | 0.96 | 0.89 | 0.76 | 3.11 | 4.02 | 4.15 | 3.54 | 3.62 |
