Esther Ruiz Cabo

Abenomics and the Japanese Economy

1- What is Abenomics and what are its objectives?

Abenomics are a joint of monetary and fiscal policies as well as structural reforms,
proposed by Shinzo Abe (Japan’s prime minister) whose major goal is to pull out japan
from their long-lasting tendency to deflation.
These policies, have also three major objectives:
1. Providing fiscal stimulus along with economic recovery measures. Increasing
government spending in infrastructure projects like; bridges, tunnels… are
examples of these measures.
2. Fostering monetary policies by injecting liquidity. Their major tool to achieve
this is by using the bank of japan and increasing the amount of Japanese yen in
the economy, crating negative interest rates in order to foster investment
rather than saving.
3. Creating programs of structural reforms like new business regulations, cutting
corporate taxes and increasing workforce diversity in order to increase Japan’s
competitiveness.

2- What are the dangers of this new Abe’s policy?

1. The stimulation of Hyperinflation or to do too little to reverse the long-time
deflation.
2. High and unsustainable debt levels. As a consequence, Abe has decided to
increase taxes, something that some see as incoherent with the rest of the
Abenomics. I.e. an increase in consumption tax, will decrease consumer
spending and lead to a recession.
3. Negative interest rates could damage the banking system and discourage
spending. Furthermore, these monetary policies may not leave room for
maneuver for future currency volatility issues.
4. Unnecessary infrastructure investment may add debt to japan without boosting
the country’s productivity.

3- What are the major structural reforms referred in the articles?

First of all, Abenomics aim for cutting corporate tax, liberalize agriculture, labor market
reforms and increase the energy, environmental and health-care sectors. Furthermore,
since the ageing of the population can be a “soon to come” problem; as this would mean
the disappearance of mostly all of its labor force, Abe announced a platform focused on
raising the birth rate by expanding social security. In addition, Abe is willing to spend
almost $17.6 billion on education and childcare providing for example free
preschool for a certain age children. This is aimed also to encourage women to join
the workforce and raise female employment and promotion to managerial positions.
Finally, Abenomics also aim to break Japanese employment system by reducing
overwork and stress in the job place.

4- Why professor Stiglitz believes that Abenomics will work positively in Japan?

First of all, the professor Stiglitz states that Abe is proposing the three policies
together and not separated as many other governments have done before. These
three policies can be complementary and push forward the economy.
Monetary policy
Regarding to monetary policy, the professor states that they have managed to weaken
the yen, making Japanese goods more competitive. Nevertheless, he hopes that
Japanese monetary policy focuses in issues such as: refinancing problems of
homeowners or small and medium enterprises lack of access to financing.
Fiscal policy
Regarding to fiscal policy the professor states that due to the credit supply crisis of the
90’s it is no surprise that the fiscal policies implemented did not work as much as
expected and did not restore growth. But he concludes that the situation would be
much worse without the government spending that these policies implied.
Structural reforms
Regarding to structural reforms, Stiglitz believes that instead of going back to old
regulations Abe should find the right regulation. This means to ensure more active
government involvement in order to ensure competition in areas that is needed
whereas in others (such as hiring practices) private sector regulations are required.
Plus, the investments in education and research are likely to be positive.
So as a summary he believes these policies will succeed because:
- The country has strong institutions and a well-educated labor force with
skills.
- Japan is located in one of the most dynamic regions.
- Japan suffers from less inequality than many advanced industrial
countries.
- The country has had longer commitment to environment preservation.