Japanese Prime Minister Shinzo Abe on Wednesday unveiled the last of the “three arrows” in his arsenal to boost the country’s economy. The first two arrows — fiscal and monetary stimulus — were launched during the past six months to raise Japan’s short-term economic prospects.
However, Tokyo stocks tumbled 3.83 percent to close at a two-month low that day, an indication that investors were disappointed by Abe’s latest plans.
Since taking office after a landslide victory in December, Abe has used aggressive monetary easing and fiscal expansion to push down the value of the yen. This has in turn lifted Japan’s stock markets and people’s confidence in the economy, boosting the approval rating for his Cabinet.
However, overall optimism toward so-called “Abenomics” has started to sour. On May 23, Japanese stocks plunged by more than 7 percent amid concerns over global economic conditions and the impact on Japan’s export-reliant economy.
The public’s support of the prime minister’s reforms has also cooled recently. The latest approval rating for Abe’s Cabinet released on May 27 had dropped to 68 percent from a record 76 percent in April, according to the Nikkei business daily.
The key to Abe’s growth strategy is the structural reform of the economy, which is a matter Japan has not taken seriously in the past 20 years. But can the economy’s newly found recovery be sustained?
During the past few months, Abe has highlighted that the country needs to deregulate its labor, energy, environment, health and medicine sectors. He has also expressed his intention to reduce business regulation and increase corporate competitiveness.
A more important factor to Abe’s reform agenda is an affordable execution plan and a determination to carry it out. That is because many people remain fearful about drastic pledges to reform. They remember all too well what happened to the reform plans of former Japanese prime minister Junichiro Koizumi after he took office in 2001.
At that time, Koizumi promised to bring changes to the economy’s decade-long structural problems. His plans included slashing public works spending, cleaning up banks’ bad debts and pushing through privatization of the national post office, among others.
Unfortunately, Koizumi’s reforms lost steam after he stepped down in 2006. They were summed up by former Japanese deputy minister of finance Eisuke Sakakibara as more rhetoric than fact.
It is too early to say whether Abenomics will succeed in ending the country’s years of deflation and sluggish growth, but it is encouraging to see a government setting a clear economic agenda and operational guidelines on matters related to the reforms.
There is no such thing as “perfect reform” and neither is there a magic wand that can solve the nation’s decade-long problems in the short term.
If there is anything in Abenomics that deserves praise, it is the attempt to drum up Japanese confidence in the economy and offer corporations hope to turn their businesses around.
This is a lesson Taiwan can learn from Japan: The nation needs a government with vision for the future and that offers hope to people and businesses.
Over the years, our policymakers have demonstrated their seriousness in tackling the weakening economy with one stimulus plan after another, but their plans have either fallen short of deep regulatory changes or lacked action to effect structural changes in key industries.
More often, the government’s plans are based on electoral considerations rather than Taiwan’s long-term needs. However, the longer people lose faith in the efforts of policymakers to revive the economy, the greater the risk to their credibility.