Abenomics: Meaning, Significance of Three Arrows in Abenomics

Abenomics was introduced when Japan’s former PM, Shinzo Abe took office in 2012. At that time, Japan was still recovering from the 2008-2009 recession. Furthermore, the country also experienced long periods of low, if not hostile, growth in the 2000s. Abenomics is a set of economic policies dedicated to boosting the nation’s money supply.

Shinzo Abe's Abenomics policy aimed to increase competition, expand trade, and accelerate growth. A distinct feature of this economic policy was its “Three Arrows”. Find out more about this unique economic policy, its history and its significance here.

Abenomics - Meaning

Abenomics can be simply defined as the economic policies that the former Prime Minister of Japan introduced with the motive of boosting the money supply of the nation. Abenomics is a set of simple monetary and fiscal policies aimed at making Japan’s economy more competitive.

Shinzo Abe became the Prime Minister of Japan for the second time in 2012, a period of economic stagnation. To shake Japan from its economic slumber, the Prime Minister introduced certain policies to deal with inflation and improve the economic condition of the country.

Three Arrows in Abenomics

Shinzo Abe’s Abenomics had three major components, known as the Three Arrows. These three arrows were to be seen as three pillars of bold monetary policy, flexible fiscal policy and growth strategy. Here are more details about the Three Arrows in Abenomics -

• First Arrow: To boost the monetary supply in Japan, PM Shinzo Abe announced the printing of additional currency between 60 trillion yen to 70 trillion yen. This move was made believing that it would generate around 2 per cent inflation.
• Second Arrow: To achieve a budget surplus in the long term and stimulate growth in the short term, Abenomics suggest the government to introduce new spending programs. This hoped to stimulate the demand and consumption of goods and services in the Japanese economy.
• Third Arrow: The third reform in Abenomics was supposed to introduce several new regulations for Japanese industries and support the private sector for economic growth.

Abenomics - Monetary Policy

By implementing the Abenomics Monetary Policy, the Japanese government began to use quantitative easing (a monetary policy of printing money implemented by the Central Bank) to help increase the economy's liquidity.

• The Bank of Japan (BOJ) began a massive asset purchase programme in which it bought assets worth $660 billion per year.
• The goal of the Abenomics Monetary Policy was to keep buying assets until the country's inflation rate reached 2%.
• To increase lending and investment, the BOJ lowered interest rates past zero in 2016. In 2018, the short-term interest rate target was -0.1%.

Abenomics - Fiscal Policy

To execute Abenomics Fiscal Policy, the government in Japan issued 10.3 trillion yen for infrastructure spendings, such as roads, buildings, and bridges. The policy aimed to encourage economic investment and spending to boost the country's GDP.

Abenomics Fiscal Policy received an additional 5.5 trillion yen in 2014. To help fund the increase in government spending, the government increased the consumption tax from 5% to 10%.

Reform of the Abenomics Policy Structure

• Abenomics Monetary Policy aimed to revamp various sectors of the economy and increase the country's competitiveness in both domestic and international markets.
• One of the major issues confronting the Japanese economy was the labour shortage. The Government hoped to ease it out with the Abenomics Policy.
• Japan's birth rate has fallen by 6%, and the country may lose more than a third of its population between 2010 and 2060, which was a setback to the Abenomics Monetary Policy.
• To address the labour shortage, Prime Minister Abe introduced "Abenomics 2.0," which aimed to increase Japan's birthrate while improving pensions and social security for senior citizens with the hope of benefitting from the Abenomics Fiscal Policy.
• A sum exceeding two trillion yen was spent on childcare and education as part of the reform, with low-income children receiving free pre-schooling as a part of the Abenomics Monetary Policy.
• Furthermore, the Japanese government worked to increase the number of women in the labour force with a view to promoting the Abenomics Fiscal Policy.

Abenomics - Result

Since the inception of the Abenomics Monetary Policy in 2012, the policy reform’s objectives have remained elusive. Critics argue that the Abenomics Fiscal Policy has had little effect on inflation, although the national debt remains at one quadrillion yen. Japan's current inflation rate is 1%, which is still less than the target rate of 2%. However, the country's GDP increased by 0.5 % in 2017 for the first time in 30 years, thanks to the Abenomics Monetary Policy.

FAQs on Abenomics

Q1. What is Abenomics?

Abenomics refers to the set of economic policies that the former Prime Minister of Japan, Shinzo Abe, introduced with the motive of boosting Japan’s money supply. Abenomics is a set of monetary and fiscal policies that were introduced post-recession to make Japan’s economy more competitive.

Q2. What are the three arrows of Abenomics?

Abenomics is a set of economic policies with three major components, also called the “Three Arrows.” Here’s what the three arrows in Abenomics stand for -

• First Arrow: Printing of additional currency to boost the money supply.
• Second Arrow: Introducing new spending programs to achieve a budget surplus in the long term and stimulate growth in the short term.
• Third Arrow: Supporting the private sector to boost the nation’s economic growth.

Q3. What was the goal of Abenomics?

The goal of the Abenomics policies was to jolt Japan's economy out of stagnation and deflation after the global recession. Japan's economic problems began in the 1990s, also known as the "Lost Decade" and worsened after the global financial crisis.

Q4. Why did Abenomics Fiscal Policy fail?

The reason for the failure of the Abenomics Fiscal Policy is that households did not share its benefits without a sufficient wage increase, and thus domestic demand was not stimulated. Abenomics did not halt the long-term stagnation of household incomes.