Japan has steadily churned through its share of prime ministers in the decades since World War II — one stint was little more than two months. Yet just as Japanese Prime Minister Shinzo Abe notched a record for the most consecutive days in office, it appears that fatigue has set in. Polls show support for his Cabinet has been sagging for a while.
After spending hours at a hospital on Monday — his second visit in about a week — Tokyo was rife with speculation that Abe is seriously ill and might step aside in coming months. [Editor’s note: Abe yesterday said that he would resign to undergo treatment for a chronic illness.]
With Japan facing its deepest downturn since the 1950s, it would be tempting to conclude that the twilight of Abenomics has arrived. Even before COVID-19 hit, the “three arrows” of the prime minister’s signature economic program had been losing altitude. Muscular fiscal policy, massive monetary easing and efforts to unshackle business from regulatory burdens were failing to adequately reflate the Japanese economy.
Abenomics has had its setbacks, but to overlook its successes would be a mistake. If anything, the legacy of this program could outlive Abe’s tenure, offering lessons to future Japanese leaders and global policymakers alike.
In the current landscape, there is little choice but for the key component of Abenomics — monetary largesse — to continue. This arrow, personified by Bank of Japan (BOJ) Governor Haruhiko Kuroda, is often characterized as a failure, because inflation has not managed to reach its target.
However, this assessment verges on schadenfreude (remember that Japan was once thought to be on the path to global economic supremacy). The defining feature of central banking in the years before the pandemic was a universal failure to reach 2 percent for any meaningful period of time. The US Federal Reserve and the European Central Bank were also unsuccessful.
The intent of “Kurodanomics,” as it is sometimes called, was laudable and its implementation breathtaking at first. At his inaugural BOJ board meeting, Kuroda dramatically expanded quantitative easing (QE) and declared an intent to reach the hallowed 2 percent in two years.
While Japan was the first major central bank to cut rates to zero, and undertook a form of QE a decade earlier, it was not until Kuroda came along that the exercise was turbocharged.
Inflation did make significant progress, but that climb began to stall after 2014, when — despite pledges of fiscal expansion — Abe signed off on an increase in the consumption tax. A deep slowdown ensued.
Unfortunately, this happened around the time that oil prices began sliding. The push toward inflation continued, but momentum was lost.
Mandarins at the Japanese Ministry of Finance — long the epicenter of bureaucratic power in Japan and a stronghold of budgetary conservatism — won that round. The political class seemed to realize its error and planned increases in the tax were postponed several times, before finally getting the go-ahead late last year.
That was another case of poor timing, coming just as the economy was slackening because of US-China trade tensions. It meant that Japan was behind the eight ball when the COVID-19 pandemic erupted.
The pandemic has given expansionary fiscal policy a new lease on life, too. A succession of supplementary budgets account for about 40 percent of Japan’s GDP. With a V-shaped recovery looking far-fetched, it is full steam ahead on stimulus around the globe.
Abe did have some success in overhauling the way that companies do business. The prime minister was a strong advocate of getting more women into the shrinking labor market. With Japan’s population dwindling, this was a matter of arithmetic as much as equality. Despite good efforts, participation still remains lower than in many other large industrial economies.
Abe’s team was also a driving force behind keeping a semblance of the Trans-Pacific Partnership alive after the US walked away. Given Japan’s reputation as a fortress of protectionism, this was groundbreaking stuff.
There are signs that some components of Abenomics is to live on outside Japan. For one, the Fed has signaled that it is willing to overshoot 2 percent inflation as part of a long-running policy review, a prospect that Kuroda said he would tolerate as early as 2016. It attracted little attention at the time because inflation was so far from that level.
Another policy measure circulating among major central banks is yield-curve control, where authorities aim to hold bond yields at about zero. Japan introduced this in 2016. When the Reserve Bank of Australia rummaged through the tool box to shore up markets this year, it settled on a similar approach.
The peak of Abenomics arguably lasted just a few years before it was neutered by policy errors and the drag of global factors. That does not mean that it was the wrong design from the outset, and the idea of an economically revitalized Japan held great appeal to voters.
After Abe’s first stint as prime minister from 2006 to 2007, China supplanted Japan as the world’s No. 2 economy and Asia’s main commercial power. There was a strong element of national security in the idea of radical medicine to get the economy going.
Even if Abenomics is entering a sunset, its substance is still an influence. That might be less because of Abe’s inherent genius than the fact that post-COVID economic scarring will require it.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
This column does not necessarily reflect the opinion of the editorial board, or Bloomberg LP and its owners.
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