How Far Will Abenomics Be Taken After Japan’s Elections?

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After a landslide win in Japan’s Upper House elections on July 21, Japanese Prime Minister Shinzo Abe has effectively been given the mandate to press ahead with his landmark reforms. While the early signs of  this radical economic policy package have been encouraging, whether Abe takes the necessary measures to make it a long term success remains to be seen.

These reforms were first introduced at the end of 2012, when the Japanese Prime Minister announced a three-pronged economic policy package, dubbed Abenomics, aiming to revitalize the economy and pull it out of 15 year’s of constant deflation. The three bulwarks of this strategy included fiscal policies to increase demand, quantitative easing, as well as much needed structural reforms.

So far, Japan has seen some improvements in its growth performance. For example, industrial production expanded for the fourth consecutive month in May; while the Bank of Japan’s quarterly Tankan survey indicated improved business sentiment in the April-June period and retail sales have gone up.

Indeed, Abe’s policy of aggressive stimulus appears to starting to boost the economy, but it is still not enough to address Japan’s two major problems: debt and demographics. Japan’s total debt currently tops 500%, an incredible amount when compared to other top ten world economies such as the US, which has a debt of 300%. Compounding the issues at hand, the country is also suffering from an ageing, shrinking population.

After a landslide win in Japan’s Upper House elections on July 21, Japanese Prime Minister Shinzo Abe has effectively been given the mandate to press ahead with his landmark reforms

It is for these reasons that Abe’s structural reforms are so crucial for ensuring sustainable growth in the long run. Opening up to immigration, encouraging women to join the labour force and deregulation are a few of the many changes required to increase Japan’s participation rate and pay for the country’s rising old age dependency ratio. In spite of making promises to take the necessary steps though, Abe has thus far been short on details on how he actually plans on achieving his aims, leaving many sceptical.

With elections for the upper house of Parliament looming, victory for Shinzo Abe’s Liberal Democratic Party could mark the start of change for Japan. It would be the first time since 1989 that the ruling government would have control of both houses (lower and upper) of parliament, making it easier for Abe to pass legislation. However, the question is, how far will Abenomics be taken after the elections this week? Will Abe undertake the necessary reforms to reduce the debt burden, improve labour flexibility and sustain long term growth? Only time will tell.

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