Abenomics

By : Neha Dhyani

Updated : Apr 7, 2022, 5:33

When Shinzo Abe took office in 2012, Japan was still reeling from the 2008/09 recession. Furthermore, it experienced long periods of low, if not hostile, growth in the 2000s.

The Prime Minister's Abenomics Policy aimed to increase competition, expand trade, accelerate growth, and gain popularity.

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 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%.

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Abenomics Fiscal Policy

To execute Abenomics' Fiscal Policy, the government in Japan issued 10.3 trillion yen for infrastructure spending, 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.

Since the inception of the Abenomics Monetary Policy in 2012, the policy reforms' 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.

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FAQs on Abenomics

Q.1. Why did Abenomics' Fiscal Policy fail?

The reason for the failure of 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.

Q.2. How did Abenomics' Monetary Policy help Japan?

Japan's economic problems began in the 1990s, also known as the "Lost Decade." The promotion of the Abenomics Monetary Policy was a way to jolt Japan's economy out of stagnation and deflation.

Q.3. What are the three arrows of the Abenomics Policy?

Japanese Prime Minister Shinzo Abe's "three arrows" were flexible Abenomics Fiscal Policy, monetary expansion, and structural economic reform.

Q.4. What is the overarching goal of Abenomics' Monetary Policy?

The primary goal of Abenomics' Monetary Policy was to boost demand and achieve inflation.