Japanese divided over ‘Abenomics’ despite global acclaim

Japanese Prime Minister Shinzo Abe returned from the G8 meeting in Northern Ireland a happy man, saying the leaders of the world’s biggest economies had endorsed his own economic programme. Abe said his policies, dubbed Abenomics, received “high expectations and high marks” at the G8 last week, where the premier pledged to “beat deflation and restore a strong economy to contribute to global growth.” However, at home scepticism is growing about whether Abenomics really is the answer to Japan’s economic doldrums. Abe started his second stint as Japanese premier in December, promoting aggressive monetary easing to overcome persistent deflation and expand economic growth.

Following his election victory, Japan’s economy responded positively to promises of “unlimited” monetary easing. The world’s third-largest economy grew by 4.1 percent during the period January to March, while exports and consumer spending also picked up. In April, the Bank of Japan introduced quantitative and qualitative monetary easing. The new central bank governor, Haruhiko Kuroda, vowed to reach a 2 percent inflation target within about two years.

Japan’s markets were galvanised. The benchmark Nikkei 225 Stock Average rose 65 percent between December and May, and the yen fell about 25 percent against the US dollar. The yen’s depreciation made Japanese goods more competitive overseas and improved repatriated revenues. However, the numbers since then have been less welcome for Abe and his government. The Nikkei has dropped 16 percent since its peak in May and the yen has climbed about 6 percent against the dollar.

“You cannot buy that much time with monetary policies,” Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co, said of the key plank of Abe’s economic stimulus measures. Critics say Abenomics has helped big businesses and the rich, while workers on average salaries have not seen the benefits. Young workers meanwhile have other concerns, said Atsushi Takeda, a member of the Youth Union labour organisation in Tokyo. “They are very worried about a consumption-tax hike, while they have not had their wages increased,” he said.

The government plans to raise the consumption tax from the current 5 percent to 8 percent in April 2014, and to 10 percent in October 2015. “Japanese political leaders say repeatedly that workers’ wages will go up and more jobs will be created,” Takeda said. “But they fail to provide specific policies to achieve such goals.” Abe’s growth targets, announced in mid-June, are to achieve 2 percent economic growth to boost per capita gross national income by 1.5 million yen or more in 10 years. The premier, however, did not say how.

Jesper Koll, managing director at J.P. Morgan Securities Japan, said he was not concerned about the apparent lack of detail. “I’m very bullish on this … simply because I see the natural development [of the economy] being turbocharged by fiscal spending and monetary easing measures,” he said. Koll also pointed out that if Abe remains in office for his full term, “a promise of policy consistency” will help the economy, just as the revolving door of recent prime ministers and finance ministers have created economic uncertainty in the last few years.

Kodama said that the government’s monetary policies “have already shown their full effect.” “As a result, support rates [for Prime Minister Abe’s cabinet] are hovering around 70 percent,” he said. “They have the time and the support, but Abe now needs to get down to real business. The only way Japan can pull the economy out of deflation is for it to go through structural and fundamental reform,” he said.