Since being elected as Prime Minister in December, Shinzo Abe has embarked on a programme of economic reform in an effort to rid Japan of the deflation that has hindered its development for the past two decades. These wide-ranging reforms, dubbed ‘Abenomics’, include fiscal stimulus, changes in personnel at the Bank of Japan where Haruhiko Kuroda has been appointed as the new governor, and a loosening of monetary policy.
The primary aim of the changes is to increase Japanese gross domestic product by 40 per cent in ten years. Shinzo Abe has said that he “want(s) to create an international business environment to match cities like London or New York.” There are Upper house elections next month and then the next elections are not for another three years. Abe’s Liberal Democratic party are currently polling at around 70 per cent.
This setting of long-term economic targets has been compared by some commentators to the communist tradition of Soviet central planning, but it has been a feature of economic reform in Japan ever since first being used by the military government of the 1930s. According to Akihiko Suzuki, chief economist at MUFJ Research and Consulting, which is an arm of Japan’s largest bank, there have been 17 such multi-year economic plans since the mid-1960s when Hayato Ikdea promised and then delivered a doubling of income in five years. Growth in Japan has averaged less than 1 per cent since Japan’s asset bubble burst in the early 1990s and the government’s finances are currently amongst the most stretched in the world.
Growth in Japan has averaged less than 1 per cent since Japan’s asset bubble burst in the early 1990s and the government’s finances are currently amongst the most stretched in the world
One of the ways Shinzo Abe is attempting to achieve the desired economic changes is by encouraging the depreciation of the yen so that Japan’s exports become more attractive to foreign investors. So far this tactic has undoubtedly been working – the yen has fallen 20 per cent in value in the last few months – and this has meant that prices in Japan have been rising, which helps combat deflation. The Nikkei 225 index has also been steadily improving and imports of luxury cars have trebled in six months, but some commentators have argued that this ‘beggar thy neighbour’ tactic of stealing demand from the rest of the world can only ever be a short-term policy.
The third ‘arrow’ of Abe’s economic plan is to be detailed on Friday 14th June and is expected to consist of another varied blend of reforms including the extension of ‘deregulation zones’ to cover entire cities including Tokyo and Osaka. The scheme is said to be aiming to bypass the bureaucracy of central government. Abe also plans to break the monopoly in the electricity industry by opening the market up to more competition, and also hopes to join the Trans-Pacific Partnership trade bloc to increase international trade. Other targets include doubling tourism income, farming income and foreign investment, tripling exports of infrastructure and plant, reducing regulations in the pharmaceutical industry and increasing the number of women that work.
The Nikkei 225 index has also been steadily improving and imports of luxury cars have trebled in six months, but some commentators have argued that this ‘beggar thy neighbour’ tactic of stealing demand from the rest of the world can only ever be a short-term policy
The third ‘arrow’ of Abe’s economic plan is to be detailed on Friday 14th June and is expected to consist of another varied blend of reforms including the extension of ‘deregulation zones’ to cover entire cities including Tokyo and Osaka. The scheme’s stated aim is to bypass the bureaucracy of central government. Abe also plans to break the monopoly in the electricity industry by opening the market up to more competition, and also hopes to join the Trans-Pacific Partnership trade bloc to increase international trade. Other targets include doubling tourism income, farming income and foreign investment, tripling exports of infrastructure and plant, reducing regulations in the pharmaceutical industry and increasing the number of women that work.
By Frank Burbage
