What is Abenomics?
Abenomics is the name given by economists and policymakers to the economic and social policies followed by the Japanese government under Prime Minister Shinzo Abe. When Prime Minister Abe assumed office in 2012, the country was still recovering from the 2008/09 recession.
In addition, Japan went through long periods of low and even negative growth in the 2000s. The main aim of Abenomics was to increase demand and achieve an inflation target of 2%. The policies were intended to increase competition, expand trade, and raise the rate of employment in the economy.
As part of the fiscal stimulus, the Japanese government issued 10.3 trillion yen for spending on infrastructures such as roads, buildings, and bridges. The policy aimed to promote investment and spending in the economy to raise the country’s Gross Domestic Product (GDP). In 2014, the fiscal package received an additional 5.5 trillion yen. To help fund the increase in public spending, the government doubled the consumption tax to 10%.
The Japanese government also used quantitative easing to help increase liquidity in the economy. The Bank of Japan (BOJ) started a large-scale asset purchase program that purchased assets worth $660 billion dollars annually. The goal was to continue the asset purchases until the country’s inflation rate hit the target rate of 2%. In 2016, the BOJ lowered interest rates past zero to increase lending and investment. As of 2018, the short-term interest target was at -0.1%.
Abenomics aimed to overhaul various sectors of the economy and boost the country’s competitiveness in local and international markets. One of the major problems faced by the Japanese economy was a shortage of labor. Birthrates in Japan were down by 6%, and the country was estimated to lose over a third of its population over the period 2010-2060.
To help overcome the labor shortage, PM Abe introduced ‘Abenomics 2.0’ that was intended to increase Japan’s birthrate and improve pensions and social security for senior citizens. As part of the reform, more than two trillion yen was spent on childcare and education with free pre-schooling for children from low-income households.
In addition, the Japanese government also worked to bolster the number of women in the workforce with the “womenomics plan.” The goal was to increase overall female employment with more women in management positions. The policies helped decrease the unemployment rate to below 3% for the first time in almost two decades.
The Future of Abenomics
Since the inception of Abenomics in 2012, the goals the policy reforms set out to achieve still remain a far reach. Critics argue that the economic reforms have done little to boost inflation with the national debt still at a high of one quadrillion yen. Japan’s current inflation rate is 1%, which is still lower than the target rate of 2%. However, in 2017, the country saw a rise of 0.5% in GDP for the first time in 30 years.
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