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Abenomics (アベノミクス, 安倍ノミクス,Abenomikusu) refers to theeconomic policies implemented by theGovernment of Japan led by theLiberal Democratic Party (LDP) since the2012 general election. They are named afterShinzo Abe (1954–2022), who served asPrime Minister of Japan from 2012 to 2020. Abe was thelongest-serving prime minister in Japanese history.[1] After Abe resigned in September 2020, his successor,Yoshihide Suga, stated that his premiership would focus on continuing the policies and goals of the Abe administration, including the Abenomics suite of economic policies.[2]
Abenomics is based upon "three arrows":monetary easing from the Bank of Japan,fiscal stimulus through government spending, and structural reforms.[3]The Economist characterized the program as a "mix ofreflation, government spending, and a growth strategy designed to jolt the economy out of suspended animation that has gripped it for more than two decades".[4]
During Abe's tenure, the rate of Japan's nominalGDP growth was higher, and the ratio of government debt relative to national income stabilized for the first time in decades.[5] However, the "third arrow" of structural reforms was not as effective as observers had hoped.[5]
In 1996, GDP increased by 3%, promising recovery from the bursting of a majorasset-price bubble in the early 1990s. The Japanese government raised theconsumption tax from 3% to 5% in April 1997, with the view to further increases in 1998.[6]
There was afinancial crisis in East and South East Asia, following the collapse of theThai Baht peg on July 2, 1997, which had widespread consequences in the entire region. Government revenues subsequently decreased by 4.5 trillion yen as consumption faltered. Nominal GDP growth remained below zero for most of the five years following the tax hike.[7][8] Japan's average annual wages grew between 1992 and 1997 but began declining after the 1997 tax hike. Since 1997, wages have decreased faster than nominal GDP.
In 2012, theDiet of Japan under previous Prime MinisterYoshihiko Noda passed a bill to increase the consumption tax to 8% in 2014 and 10% in 2015[9] in order to balance the national budget; this tax hike was expected to further discourage consumption.[10]
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During theGreat Recession, Japan suffered a 0.7% decline inreal GDP in 2008, followed by a severe 5.2% decline in 2009. In contrast, the data for world real GDP growth was a 3.1% increase in 2008, followed by a 0.7% decline in 2009.[11] Exports from Japan shrank from 746.5 billion in U.S. dollars to 545.3 billion from 2008 to 2009, a 27% reduction.[12] By 2013,nominal GDP in Japan was at the same level as 1991, while theNikkei 225 stock market index was at a third of its peak.[4]
Abe's economic policy is also related to the rise of China as an economic and political power. Abe's supporters drew explicit parallels between Abenomics and theMeiji era program offukoku kyōhei (enrich the country, strengthen the military). In addition to providing a stronger counterweight to China in the Asia-Pacific region, strengthening the Japanese economy is also intended to make Japan less reliant on the United States for defense.[4]
| Year | Nominal GDP (billions of yen) | NGDP Growth (%) | Unemployed persons (thousands) | Economically active population (thousands) | Unemployment (%) |
|---|---|---|---|---|---|
| 1994 | 486526.3 | 1.19 | 1920 | 66450 | 2.88 |
| 1995 | 493271.7 | 1.38 | 2100 | 66660 | 3.15 |
| 1996 | 502608.9 | 1.89 | 2250 | 67110 | 3.35 |
| 1997 | 512248.9 | 1.91 | 2300 | 67870 | 3.38 |
| 1998 | 502972.8 | -1.81 | 2790 | 67930 | 4.10 |
| 1999 | 495226.9 | -1.54 | 3170 | 67790 | 4.67 |
Note: NGDP is valued at 2006 market prices
Abenomics consists ofmonetary policy,fiscal policy, andeconomic growth strategies to encourage privateinvestment. Specific policies includeinflation targeting at a 2% annual rate, correction of the excessive yenappreciation, settingnegative interest rates, radicalquantitative easing, expansion ofpublic investment,buying operations of constructionbonds by theBank of Japan (BOJ), and revision of the Bank of Japan Act.[14] Fiscal spending will increase by 2% ofGDP, likely raising the deficit to 11.5% of GDP for 2013.[15]
Two of the "three arrows" were implemented in the first weeks of Abe's government. Abe quickly announced a ¥10.3 trillion stimulus bill and appointedHaruhiko Kuroda to head the Bank of Japan with a mandate to generate a 2% target inflation rate through quantitative easing. But Kikuo Iwata, the deputy governor of the Bank of Japan, suggested that the BoJ does not strictly aim for[16] the 2% price target in two years. Iwata implied that the BoJ would not loosen again its monetary policy, aimed at halting economic stagnation, soon after the increase in the sales tax in April 2014.
Structural reforms have taken more time to implement, although Abe made some early moves on this front such, as pushing for Japanese participation in theTrans-Pacific Partnership.[4]
The2013 House of Councillors election gave Abe complete control over the Diet, but the government showed some internal division over specific structural reforms. Certain cabinet members favored lower corporate taxes, while others were wary of the potential political backlash for cutting taxes on large firms while raising taxes on consumers. Labor laws and rice production controls have also become contentious issues within Abe's government.[17]
On 4 April 2013, the BoJ announced its quantitative easing program, whereby it would purchase ¥60 to ¥70 trillion of bonds per year.[18]
On 31 October 2014, the BoJ announced the expansion of its bond buying program to ¥80 trillion of bonds per year.[19]
Abenomics had immediate effects on various financial markets in Japan. By February 2013, the Abenomics policy led to a dramatic weakening of theJapanese yen and a 22% rise in theTOPIX stock market index.[3] Theunemployment rate in Japan fell from 4.0% in the final quarter of 2012 to 3.7% in the first quarter of 2013, continuing a past trend.[20]
The yen became about 25% lower against theU.S. dollar in the second quarter of 2013 compared to the same period in 2012, with a highly loosemonetary policy being followed.[21] By May 2013, the stock market had risen by 55%,consumer spending had pushed first-quarter economic growth up 3.5% annually, and Shinzo Abe's approval rating ticked up to 70%.[4] ANihon Keizai Shimbun survey found that 74% of the respondents praised the policy for alleviating Japan from the prolonged recession.[22]
The impact on wages and consumer sentiment was more muted. AKyodo News poll in January 2014 found that 73% of Japanese respondents had not personally noticed the effects of Abenomics, only 28% expected to see a pay raise, and nearly 70% were considering cutting back spending following the increase in the consumption tax.[23]
Under a weaker yen, Abenomics increased the cost of imports, including food, oil, and other natural resources upon which Japan is highly reliant. However, the Abe government viewed this as a temporary setback, as the weaker yen would eventually increase export volumes. Japan also managed to maintain an overall current account surplus due to investment income from overseas.[24] In December 2018, however, it was confirmed that the Japanese economy started contracting in the third quarter of 2018 and had declined the most in four years during this quarter as well.[25]
BMI Research expressed the view that the Japanese economy would fall into fiscal crisis before 2020 due to basic structural issues, including highgovernment debt, worseningdemographics, and loss ofcompetitiveness in key industries.[26]Anatole Kaletsky was an early supporter[27] of Abenomics, but since the Japanese government decided to raise the country's consumption tax rate to 10%, he expressed his concern that the tax hike could deal a more devastating blow to the Japanese economy than expected. In 1997, the Japanese government raised the rate to 5% from 3% to tackle its debt of 50% of its GDP at that time, promising that the tax hike would be offset[28] by income-tax reforms. However, the tax hike ended up making domestic consumption stumble, pushing the economy into recession. The country fell into[29] adeflationary trap. Due to the country's long-running malaise, the government's gross debt reached 200% of its GDP, despite the increase of the sales tax. TheInternational Monetary Fund (IMF) forecast that the tax hike would cut Japan's economic growth from 2.5% in 2013 to 1.4% in 2014, but Kaletsky argues that this economic downturn is underestimated.
In March 2014, at a conference in Abu Dhabi,Lawrence Summers expressed his concern[30] about the negative effects of the tax hike, saying that it could damage the Japanese economy more seriously than early estimates. Although the Japanese government expects their economy to recover after the it goes into a short recession, Summers suggested[30] that Japan's rebound was overestimated.
Koichi Hamada, a monetary adviser for Shinzo Abe, warned that the plannedvalue-added tax (VAT) hike could hurt Japan's economy, which had started to recover from a long recession and deflation. He says that the Japanese government should defer the tax hike so that it could not discourage consumption, adding that economists such asJeffrey Frankel have suggested[31] the gradual increase of the rate of the tax by one percent annually. Although Hamada is concerned about the effects of the tax hike, he expects that monetary easing by the BoJ can offset its negative effects, applying theMundell–Fleming model to Japan.
Depreciating a domestic currency can boost its exports if theMarshall–Lerner condition is met. If it is not, the trade balance initially becomes worse.
Since the disastrousnuclear incident in Fukushima in 2011, many nuclear power stations in Japan have been shut down. Making up for lost electricity generation, Japan has imported[32] extrafossil fuels, which worsened the country's trade deficit, partly because of a weaker yen. The increasing cost of electricity may hurt businesses in the country and hamper the country from boosting its economy. ButShigeru Ishiba said that people were noticing that electricity could be supplied without nuclear power generation. Thus, restarting the reactors is still controversial; a nationwide poll showed that 76 percent either opposed nuclear power or wanted Japan to reduce its reliance on nuclear energy, while in some regions,[33] such as communities close toSendai, where nuclear power plants create jobs and relating subsidies are granted, restarting the reactors is widely supported. Unless nuclear reactors are restarted, the Marshall–Lerner condition will not be met, due to a heavier dependence on fossil fuels and an increased reliance on imports.
Martin Feldstein argued that consumption would be damaged by monetary ease policy by national bank, when the rise in prices is higher than the rise in wage.[34]
Deflation causes consumers to expect goods and services to be cheaper in the future, discouraging present spending. In turn, this causes the economy to shrink, as consumer spending is vital.Richard Koo explained this phenomenon as thefallacy of composition. That is to say that, while correct behaviour is desirable individually, it can cause undesirable consequences for the economy as a whole.[a][35]
Richard Koo opposed the idea thatJapan's aging population and decreasing labour force caused the country to suffer from chronic deflation. Population aging leads to a situation where the number of people (including retired people) who spend money becomes larger than that of people who work.[36] In other words, demand should tend to exceed supply, and therefore population aging should be inflationary.
He goes on to explain what actually has occurred in Japan. Japanese companies are unwilling to borrow money and pay interest that the elderly obtain, which may discourage the elderly to spend.[36] Thus, Japan's tenacious deflation has been caused by the weak demand.
Japan's nominal output has decreased by more than $1 trillion, due to falling land prices and equity since 1990. Richard Koo said that in human history, Japan was the only country suffering such a loss during peacetime. In a 2003 speech in Tokyo,Ben Bernanke suggested that the Bank of Japan should implement quantitative easing in order to put an end to the deflation spiral. 5 years after his speech, Bernanke started quantitative easing as chair of the USFederal Reserve, to fend off a Japanese-like lost decade due to a bubble in housing prices.[35] The US central bank has since then bought financial assets like bank debt, mortgage backed securities, and US government bonds. This amounted to nearly US$4.5 trillion by 2015.[35]
Japanese wages began to decrease from 1997 to 1998, andHiroshi Yoshikawa, a professor at theUniversity of Tokyo, said that Japan's tenacious deflation was caused by this decline. He argues that the monetary easing by the BoJ becomes powerless[37] because the interest rate is already close to zero. The solution he offers to beating the deflation is to push companies to pay their workers more. Kikuo Iwata, Etsuro Honda, and Koichi Hamada disagreed with Yoshikawa. Hamada said if the wages just increased, companies would become incapable of maintaining their current level of employment.
LDP Secretary GeneralSadakazu Tanigaki held that it was difficult to cope with risks stemming from sidestepping the planned consumption tax hike to 10 percent, suggesting that the Japanese government should increase the tax rate as scheduled.[38]
Haruhiko Kuroda, the governor ofBank of Japan, said that raising Japan's consumption tax is a confidence-building measure, and that the measure could stabilize the social security,[39] which would strengthen Japan's economic growth. He stated that stagnation due to the tax hike would be temporary, while he mentioned the possible scenario in which the BoJ would additionally conduct quantitative easing. He warned that the cut of its corporation tax could worsen its fiscal position.
BoJ governor Kuroda argued that if the second hike was delayed, the markets would perceive that Japan is unlikely to tackle its government debt, and then the yields of the government bonds would soar.[40] BoJ's former deputy governor, Kazumasa Iwata, said that if the second hike was put off, it could be permanently postponed, and it would become difficult to reach a new agreement on the schedule of the hike. He said that implementing stimulative measures was the only way to alleviate the tax hike's negative impact.[40]
Hiroshi Yoshikawa is one of the strong supporters of the consumption tax hike to 10%; he maintains that there is no alternative.[41]
One BoJ board member expressed concern over the planned tax hike set to take effect in 2014 and 2015.[42]
Paul Krugman said that the consumption tax hike from 5% to 8% raised serious doubt about Japan's economic recovery, and that in order to lift the economy, the government should decrease theVAT to 5% and work to build up inflation expectations.[43]
Lawrence Summers supported the view that the Japanese government should postpone the planned tax hike, suggesting that steady economic growth should be more important for the country than fiscal discipline.[44] He says that if its economic growth accelerates, the world's third-largest economy can tame its government debt. He says that fiscal policy is much more effective than monetary policy, because the former can inject income directly into the spending stream.[44]
When Summers was the US Deputy Secretary of the Treasury, he told the Japanese government not to raise the consumption tax rate from 3% to 5%.[45] But the government ignored his warnings, and raised the tax in 1997 for the purpose of balancing its budget. Although the country recorded a GDP growth rate of 3% in 1996, the economy sank into recession in 1998.[6] On top of that, the revenue of the government decreased by 4.5 trillion yen in 1998, mainly because Japan's domestic consumption stumbled. Graph A shows the revenue of the Japanese government during 1994–2006.[46] The tax revenue reached a peak of 53 trillion yen in FY 1997 and declined in subsequent years, being still 42 trillion yen[47] (US$537 billion) in 2012.
Joseph Stiglitz said that Japan's economy was still fragile, and the planned consumption tax hike from 5% to 8% would plunge it into recession.[48]
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TheInternational Monetary Fund (IMF) characterized the program as "a unique opportunity to end decades-long deflation and sluggish growth and reverse the rise of public debt", but argued that "all three arrows need to be launched for the policies to succeed. Uncertainty about the ambition of fiscal and structural reforms is adding to underlying risks."[49]
Economist Joseph Stiglitz has explained howShinzo Abe's programme for Japan's economic recovery has led to a surge in domestic confidence, and questioned how far Abe's "Abenomics" could claim credit. He referenced Momcilo Stanic, saying there is every reason to believe that Japan's strategy to revive and boost its economy will be a success.[50]
The Washington Post journalist Neil Irwin cited successful expansion byToyota, with operating profit rising 88% in the second quarter of 2013, as evidence that the economic program of Japan is working. He stated that "the fact that one of Japan's biggest and most important companies is again finding ways to make money on the homefront is a good sign that the nation's economic torpor may not last too much longer." He has also argued that Abenomics could "change the economic psychology of Japan domestically" by providing export hikes through currency devaluation.[21]
There is rising skepticism regarding Abenomics, pointing out that the policy is too focused on demand rather than supply, such as the case of the Japanese government's push forgeneric medicines within its universal healthcare system without actually addressing the root causes.[51] One of the fundamental problems that Japan is facing is its aging population. As itspopulation pyramid becomes inverted, the labor pool shrinks from year to year. This brings about a number of problems for the Japanese economy.[52]
First, the government commitment to spending onpensions, medical expenses, andsocial security will continually act as a substantial burden to the already indebted country, with apublic debt of 240% itsGDP.[52] This will further worsen thefinancial integrity of the Japanese government, leading to an erosion of international confidence in Japanese economy. The lack of confidence can raise the risk premium (CDS).
Secondly, its dwindling workforce cannot sustain theeconomic output that is maintained in the future. Thedemographics of Japan will drastically change so that more young people will have to support the older population, which implies that this change in demography is the main culprit for the last two decades ofdeflation and stagnanteconomic growth.[52] This is another implication in why the consumer demand might be falling behind.[52]
Goldman Sachs chief economist Naohiko Baba has criticized the infrastructure spending component of Abenomics, arguing that the Japanese construction industry is inefficient and short of workers.[17]
In January 2013, German ChancellorAngela Merkel said that the German people believed that central banks should not make up for bad political decisions, and she criticised Japan and the US for their expansionary monetary policies to enhance their competitiveness.[53]Bundesbank chiefJens Weidmann accused the Japanese government of politicising exchange rates and threatening the independence of the central bank.[54] TheEuropean Central Bank launched quantitative easing programmes of its own two years later.
Koichi Hamada countered the criticism that only big firms and the rich benefitted from Abenomics, saying that it had atrickle-down effect on rest of the economy. He said that Japan needed to lower corporate taxes from about 35% (current level) to 24% to attract investment.[55]
Thomas Piketty said that Japan needed to change the structure of its taxation in order to help the Japanese young generation, suggesting that the world's third-largest economy should increase taxes on the wealthy and big firms from 10% to 20%.[56] He took the view thatredistribution of wealth could be the fourth arrow of Abenomics. He added that raisingVAT was a bad way to reduceinequality in the country.
Joseph Stiglitz suggests that, even if tax cuts for the rich are done in US or UK, big firms just try to use them for their personal gains, not for raising wages of their employees.[48]
There is no formal estimate of the results of Abenomics by the Japanese government.[57]
The IMF affirmed that Japan's nominal GDP contracted by $1.8 trillion during 2012–2015, while real GDP contracted at an annual rate of 6.8 percent[58] in the second quarter of 2014, after the consumption tax hike came into effect in April. This fall is the worst since the devastating earthquake and tsunami disaster[59][60] hit Japan in the first quarter of 2011, when the GDP shrank by an annualised 6.9%. In the third quarter of 2014, the GDP shrank by an additional 1.6%, largely thanks to the consumption tax hike.[61] The tax hike to 8% has had a significantly negative impact on the Japanese economy. In 2014, the revised real GDP growth of the second quarter was minus 7.1% on an annualised basis,[62] contrary to economists' expectation that the economy would shrink at an annual rate of 3.5% in the second quarter.
Household spending fell 5.9% in July 2014 from the same month a year earlier, more than the median forecast of economists polled byReuters of a 3% drop, because of the higher consumption tax.[63]
Economics ministerAkira Amari[60] said that the Japanese government would take necessary measures depending on its economic condition, although at that moment, he did not feel that those measures needed to be taken. Amari expressed confidence[64] that the effect of the consumption tax hike began to wear off and that the economy would recover later in 2014.
Kyohei Morita and Yuichiro Nagai[60] said they believed that Japan's real GDP would return to growth exceeding potential, mentioning economic indicators such as public works and housing construction orders.
Economist forecasts said that the Japanese economy would grow by an annualised 2% in the third quarter of 2014, but in reality, the country's GDP contracted at an annual rate of 1.6% in the quarter. Japan's second consecutive contraction meant that technically, the third-largest economy slipped into recession.[65][66] Revised figures said that Japan's GDP shrank at an annual rate of 1.9% in the third quarter of 2014, which is 0.5% contraction on a quarterly basis. The consumption tax hike in April continued to have a negative impact on the economy.[67] Business spending decreased by 0.4% from the previous quarter. Abe determined to call for a snap election to win a mandate to delay the second tax hike, which was scheduled to be done in 2015.[67]
Akira Amari, however, said that there was a positive ongoing cycle in the economy and they could not sum it all up with the word recession, conceding that the consumption tax hike in April 2014 dented consumer spending.[65]
The following figure compares the 1996-1999 period with the 2013-2015 period, in terms of Japan's real GDP. During the 1996-1999 period, the consumption tax was raised from 3 to 5%, and during the 2013-2015 period, the same tax was raised from 5% to 8%. For the 1996-1999 period, the GDP of the first quarter of 1996 is set to 100. For the 2013-2015 period, that of Q1 of 2013 is 100. The interval of the horizontal axis is one quarter, and the quarters when the consumption tax were raised are set to zero. Therefore, the GDPs of Q1 1996 and of Q1 2013 correspond to values evaluated at quarter -5.
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In the first quarter of 2015, Japan's economy grew by 0.6% on a quarterly basis. Increases in inventories helped the economy to expand, but the momentum was lost in the second quarter. This suggests that the consumption tax hike from 5 to 8% continues to have a negative effect on the economy.[68][needs update]
TheOECD reported that Japan's real GDP is expected to expand by 0.7% in 2015. This growth rate is lower than US's 2.0 and UK's 2.4.[69]
In the third quarter of 2015, the Japanese economy contracted 0.8% in annual terms and went into a technical recession as the real GDP shrank for two quarters consecutively.[70] The GDP figure was worse than economists' forecast, which only estimated around 0.2% in the third quarter.[71] This recession was its fifth recession since theLehman shock occurred in 2008. But Amari seemed to be optimistic about the future of Abenomics, indicating that this technical recession would be temporary and that the economy was showing signs of continuous and gentle recovery.[71]
In 2021, the authenticity of Japan's GDP as a result of Abenomics was questioned, after it was revealed that the Japanese government overstated construction order data for years under the Abe government, a move that would effectively have inflated the Japanese GDP.[72] There was evidence of double counting in the construction data.[73]
As external demand on Japan's goods declined, Japan's exports fell 2.7%[74] in May 2014 from the previous year. But its imports fell by 3.6% from a year before as well, which narrowed Japan's trade deficit by 8.3%. Japan's trade deficit with other countries was over 1 trillion yen in April 2014, and it went down to 909bn yen ($8.9bn, £5.2bn) in May 2014. The country ran a trade deficit for the 23rd[74] straight month the next June.[needs update]
In late January 2015, BoJ governorHaruhiko Kuroda admitted that the central bank would not achieve the 2% inflation target by April 2015, adding that he expected the price level to reach the target level in another 12 months. In February 2015, he said that the 'escape velocity' to lift the economy out of deflation needed to be "tremendous".[75] Although he pledged to meet the target in 2013, the actual core CPI was 0.7% in January 2015.[76] Oil prices were about US$100 in April 2014, and then they decreased about 50 percent by the end of 2014. Kuroda maintained that the decline in oil prices made it difficult for the BoJ to meet the target.
Abenomics aimed at ending the deflation which had continued for more than 15 years, focusing on massive monetary stimulus to build up self-sustaining expectations of moderate inflation. But the expectations were dulled by the consumption tax hike, and the country eventually fell back into deflation. The growth rate of GDP deflator was minus 0.3% in the third quarter of 2014.[66]
As of 2019 Japan's unemployment rate was the lowest in theG7.[77] Its employment rate for the working-age population (15–64) was the highest in the G7.[77]
In early October 2014, the IMF revised its 2014 global growth forecast downwards, from 3.4% to 3.3%, although many central banks continued to provide liquidity to the world financial market. Weaker expansions in Japan, Latin America, and Europe worsened the outlook for the world economy.[78]
In October 2014, theWorld Bank's chief economistKaushik Basu said that the world economy was taking the risk of stagnation, adding that the Eurozone and Japan were the main slowdown areas.[79]
The Eurozone has been brought to the verge of recession.[80] Italy has suffered from recession for a long time, and France is forced to balance its budget by Germany despite the fact that its economy is depressed.[81] Germany's economy is likely to contract for the second consecutive quarter in 2014.
Japan, the world's third-largest economy, can likely to sink into recession due to the consumption tax hike.[81] Although the IMF's previous forecast assumed that Japan would grow 1.6% in 2014, the forecast was revised downwards to 0.9%.[78]
Regarding the impact upon the US economy, officials of the Federal Reserve Bank, including its second-in-command, said that global stagnation could cause the Federal Reserve Bank to be forced to postpone the planned interest rate hike.[80] US Treasury SecretaryJacob Lew rejected the idea that the US alone could boost the world economy.[78]
The Abe administration was supposed to increase government expenditure, but the Ministry of Finance ordered Abe to use fiscal austerity measures.[82]
The consumption tax hike from 5 to 8% brought about the self-induced recession in 2014, which discouraged Japanese consumers from spending and gave them a signal of further austerity.[82] The tax hike seemed to start permanently damaging the Japanese economy.[83] Japan's GDP contracted by 0.8% in annual terms in the third quarter of 2015, which made Japan go into a technical recession.[84]
Kozo Yamamoto, one of the creators of Abenomics, said that he was shocked by the latest growth figure, and that the Japanese government should transfer money to those who do not benefit from Abenomics. He argued that it was necessary for the government to adopt an expansionary fiscal policy to lift the economy.[85]
Japan's real GDP shrank at an annualised rate of 1.4% in the last quarter of 2015.[86] Consumption, housing investment, and exports decreased in the final quarter. Although a revised figure might be significantly different from this figure, it is possible that, in the first quarter of 2016, the Japanese economy will fall into the second recession in the Abe administration.[86]
Prime Minister Sinzo Abe and his Liberal Democratic Party (LDP) are unlikely to deliver a sustainable recovery of the Japanese economy and address the country's structural woes. These include a colossal national debt burden, demographic decline, and the loss of competitiveness of Japan's key industries. There is a high risk of a fiscal crisis before 2020, and LDP's eventual replacement by new political forces... Abe's... 'three arrows' of 'Abenomics'... represents the boldest efforts in many years to rewire Japan's economy. Nonetheless, 'Abenomics' risks pushing the country towards a financial crisis over the coming years.
Martin Feldsein...warned that Abe's emphasis on restoring inflation could actually make things worse...His concerns are shared by some within the Bank of Japan and the investment community...What Feldstein is claiming is that, if bond investors expect a 2 percent rise in inflation, then they will refuse to buy bonds unless they get a more or less equal 2 percent rise in interest rates. His critical assumption is that the Bank of Japan has no way to counter the investor's desire. and therefore no way to lower "real" (inflation-adjusted) rates...The major danger would come if inflation ware not accompanied by a return to real wage growth. In that case, consumer demand would take a big hit.
![Unemployment rate of Japan[77]](/mt/?noimg=&dark=on&url=http%3a%2f%2fen.wikipedia.org%2fwiki%2fFile%3aUnemployment_rate_in_Japan.svg)
