Abenomics, Seven Years In: Has It Succeeded?

In September 2018, Shinzo Abe won a party election, thereby securing his third consecutive term as president of Japan’s Liberal Democratic Party and getting closer to becoming the longest-serving prime minister in the country’s postwar history. With his current administration now in its seventh year, Abe looks likely to continue implementing the economic policies he started in 2012, dubbed "Abenomics” and based upon “three arrows” of bold monetary policy, flexible fiscal policy, and structural reform to promote private investment.

Seven years in, with growth visible in many measures of the Japanese economy, has Abenomics truly succeeded? Are there, in fact, shortcomings that the administration needs to address before taking the proverbial victory lap, as Abe is considering the legacy he will leave behind? What are the most important challenges facing the Japanese economy in the near future?

These questions were the focus of an expert panel that APARC’s Japan Program recently hosted at Stanford. The event gathered five experts to go beyond the readily apparent successes of Abenomics in order to examine some of its potential shortfalls.

Takeo Hoshi, director of the Japan Program and moderator for the panel, opened the session by recounting many of the acheivements made by Abenomics: the country’s economy was experiencing its longest expansion in the postwar period—73 months and counting; real GDP was increasing; and the unmployment rate had fallen below 2.5%, with significant growth in female workforce participation.

And yet by other measures, Abenomics could be viewed as having missed several of its major goals. Inflation remains around 0.5%, and even after extending the target date from 2020 to 2025, it appears unlikely that the Japanese government can achieve primary balance. Additionally, and even though the government changed the way it calculated nominal GDP (leading to a possibly-inflated bump), the economy was still unlikely to reach the target goals of 600 trillion yen GDP along with 3% nominal growth and 2% real growth as set by Abenomics.

Joshua Hausman, assistant professor of public policy and of economics at the University of Michigan, discussed Abenomics targets for inflation. Hausman explained to the audience that Abenomics expressed goal of raising inflation was meant to achieve three benefits. First, GDP would see growth due to increased domestic spending ahead of inflation. Second, by raising nominal interest rates above 0%, the Bank of Japan would have more leeway to lower rates during a recession. And third, raising the rate of inflation would help erode Japan’s substantial government debt.

However, argued Hausman, while the Bank of Japan was hopeful that their actions would encourage businesses to raise prices, there has yet to be a significant change in the inflation figure. And while there has been growth in the GDP, the amount of change mirrors that of the period between 1993 and 2007, well before Abenomics. The Bank of Japan, concluded Hausman, desserves credit for what it has achieved, but should consider alternative courses of action.

Takatoshi Ito, professor of international and public affairs at Columbia University, noted that the Abe administration was also unlikely to achieve its goal of a primary balance in the next six years. Even after raising the consumption tax in 2014 (and with indications that another tax hike would occur in October of this year), the mark was unlikely to be achieved, because even as tax revenue were increasing, so too were expenditures made by the Abe government.

Another impact area of Abenomics, and focus of previous events by the Japan Program, is “womenomics,” or the economic policies’s influence on women’s presence and roles in the workforce. Nobuko Nagase, professor of labor economics and social policy at Ochanomizu University, Japan, shared several of the ways in which the administration appeared to be successfully addressing gender inequality in the economy. One big achievement has been the increase in the number of female university graduates who have children and are able to obtain better-paying jobs. Previously, as little as 30% of the female workforce in Japan remained employed following either marrage or a first child; the present figure has risen to 48%. And while across all management levels the growth of women has been relatively flat, among the middle and lowest tier management positions, there have been modest improvements in female representation.

Nagase noted, however, that there was still much to be done. Abenomics has not been successful in increasing the participation of fathers in childcare. Additionally, while both men and women had seen reductions in the long work hours for which Japan is notorious, improvement in narrowing the gender pay gap has been slow, especially in large-size firms. The most important challenges, said Nagase, are reforming the japanese labor practice of long-term employment and the seniority-based pay system, changing household models from full-time working husband and dependent housewives to double income households with children, and re-regulating labor rules to protect non-standard employees.

Panelist Steven Vogel, professor of Asian studies and of political science at the University of California, Berkeley, considered the extent to which the third arrow of Abenomics has hit the mark. He suggested that the Japanese government had succumbed to the ideological trap that regulations were a hindrance to the markets. Before Abe, explained Vogel, deregulation models had led to increases in non-regular work, expansion in inequality, and lower overall consumption. And while under Abe there was a continuation of appetite for deregulation—for example, the establishment of 10 dereguation zones over several cities—there is some evidence, albeit mixed, of it having a positive impact: profits are up, but capital investment and labor’s share of income are both down.

“Don’t expect huge economic impact from deregulation per se,” noted Vogel. Japan needs to improve its model of corporate governance, and it needs labor market reform, he concluded.

The panel was cohosted by the Japan Society for the Promotion of Science and the Japan Foundation Center for Global Partnership. For related information, as well as published reports, see the Japan Program’s research project The Political Economy of Japan under the Abe Government.