Abenomics

Abenomics [ah-bey-nom-iks] refers to the economic policies advocated by Shinzō Abe, the current Prime Minister of Japan. It consists of monetary policy, fiscal policy, and economic growth strategies to encourage private investment.

The detailed policies includes inflation targeting at a 2% annual rate, correction of the excessive yen appreciation, setting negative interest rates, radical quantitative easing (printing money), expansion of public investment, buying operations of construction bonds by Bank of Japan (BOJ), and revision of the Bank of Japan Act.

As of May 2013, it has achieved the depreciation of the yen to 102 yen to a dollar, which was stagnating around 80 in 2012. Also, according to a survey carried out by Nikkei Newspaper in Japan, 74% of the respondents praised the policy in alleviating Japan from the prolonged recession. The economy had been depressed after the asset bubble burst in the early 1990s, and it suffered from the recession. The NGDP growth was slow so that it could not absorb the unemployment. The consumption-tax-hike in 1997 worsened the depression. The nominal GDP growth rate plunged to -1.8 percent in 1998, and the jobless rate soared to 4.1 percent.

At a meeting at the House of Representatives, the Democratic Party of Japan President Banri Kaieda questioned several measures of Abe’s economic plans and also criticized the administration’s plan of inflation targeting, concerned that it may result in a drop in real wages if jobs and salaries only increase marginally. Abe asserted that his administration would achieve higher wages by reinforcing competitiveness and growth potential (such as modifying tax policies and greater investment in R&D), macroeconomic policies and sustainable fiscal structure.

European Central Bank policymaker Jens Weidmann expressed concern that government interference and pressure on the Bank of Japan endangers their independence and may lead to currency wars. Russian Central Banker Alexei Ulyukayev considered the possibility that other countries might follow suit and engage in destabilizing devaluations. On the other side, the Nobel laureate of economics Joseph Stiglitz wrote an entire guest commentary explaining why Shinzo Abe’s programme for Japan’s economic recovery has led to a surge in domestic confidence. He actually 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.

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