What Is Abenomics?

Abenomics is a set of economic policies implemented by Japan under the administration of Prime Minister Shinzo Abe, which rescued the country from its deflationary slump. In an effort to extricate Japan from deflation, economic policies integrated with structural changes were adopted.

Abenomics is frequently perceived as aggressive measures affecting the country's monetary and fiscal status. It involves boosting fiscal and monetary stimulation through government expenditure and unusual central bank policy, respectively.Abenomics, which was implemented in 2012, aimed to attain an inflation target of 2% to eliminate deflation and the near-stagnation of the Japanese economy since the 1990s. Its immediate objective was to increase domestic demand and GDP expansion.

Condition of Japan Before Abenomics

In 1996, the gross domestic product (GDP) grew by 3%, signaling a rebound from the bursting of a large asset-price bubble in the early 1990s. In April 1997, the Japanese government increased the consumption tax from 3% to 5%, with the expectation of further hikes in 1998.

After the collapse of the Thai Baht peg on 2 July 1997, there was a financial crisis in East and South-East Asia, which had extensive effects on the whole region. After the tax increase, nominal GDP growth stayed below zero for the majority of the subsequent five years. It even had an impact on the average yearly wage in the country, which increased between 1992 and 1997, but began to decline following the 1997 tax increase. Since 1997, wage declines have exceeded nominal GDP declines.

In order to balance the national budget, the Teikoku Gikai under former Prime Minister Yoshihiko Noda enacted a measure in 2012 to increase the consumption tax to 8% in 2014 and 10% in 2015; this tax rise was intended to discourage spending further.

Did Abenomics Work?

Monetary policy, one of the three arrows, is intended to reduce interest rates. This had a substantial impact on the devaluation of the Japanese yen. In 2013, it was suggested that the weakening of the yen may be beneficial for the Japanese economy since it could assist exports and encourage other currencies to purchase more Japanese-made goods. The greater the sales volume of manufacturers, the greater the corporate earnings, which would result in more company investment. Nonetheless, as of December 2017, the inflation rate was 1%, which was below the goal rate of 2%. However, one positive aspect of the recent expansion of the Japanese economy is the need for high-tech goods. Japan was able to resort to layout-saving technologies as a result of the three-arrow strategy, which has helped the economy overcome its labor shortage and increased productivity. There has been a rise in tourism, which has helped to bolster the economy.

The Three Arrows of Abenomics

Shinz Abe's tenure lasted from 2006 to 2007, but when he returned to the government in 2012 for a second term, he brought with him economic measures that would act as answers to Japan's deflation. To revitalize Japan's stagnating economy, he implemented Abenomics. Monetary policies, fiscal policies, and structural changes or growth plans are the three primary components of Abenomics. The monetary policy is centered on the injection of new money in the range of 60 to 70 trillion yen, and the second component is to enhance government expenditure, which would provide a fiscal stimulus. The third component of Abenomics needs Japan's industries and corporations to undergo considerable transformation.