Is Abenomics a Hit or a Miss for Japan?
Standard & Poor’s Downgrades Japan to A+
Japan’s stock markets have surged under Abe’s regime
About three years ago, Shinzō Abe became prime minister of Japan. Under his aegis, Japan (EWJ) has seen its stock market rally, led by companies such as Sony (SNE), Mitsubishi UFJ Financial (MTU), Honda Motor (HMC), and Toyota Motor (TM). The Japanese stock market has surged, outperforming all major developed markets (EFA). See Japan Outperforms Markets So Far this Year for more background.
Abenomics
Abe’s core objective is to pull the world’s third-largest economy out of two decades of stagnation by expanding Japan’s money supply, freeing up regulations, and encouraging the yen to fall. For this, Abe prefers using a three-pronged strategy, popularly known as Abenomics.
Abenomics is a three-pronged approach that Abe likes to refer to as his “three arrows.” These include fiscal stimulus, monetary easing, and structural reforms. However, it seems that the arrows have done all they can to help the debt-laden aging economy of Japan. Currently, the economic situation remains weak.
The first arrow of monetary stimulus was last used in the fourth quarter of 2014. The second arrow, fiscal stimulus, in the form of government spending, has also been losing its pace after 2013. Structural change, the third arrow, has become more necessary in the current state of the economy. The necessity is heightened by reasons highlighted in our article Why Now Could Be the Right Time for Structural Reforms in Japan.
What’s restricting recovery in Japan?
The key factor impeding Japan’s economic progress is its demographics. The median age in Japan is 46 years. An aging population leads to increased fiscal expenditure as the number of dependents on social schemes such as pensions increases.
The workforce is shrinking, and productivity is declining. Moreover, Japan’s economy is facing declining economic competitiveness due to the monopolized nature of various key sectors in the country such as power and agriculture.
You can read a more detailed account of the above factors in our series It’s Time for the ‘Third Arrow’ of Abenomics in Japan.
Browse this series on Market Realist: