The Abe Administrations Attempt to Escape from Deflation through Abenomics

Abstract

Five years have passed since the implementation of the three arrows of Abenomics—bold monetary policy, agile fiscal policy, and growth strategies to stimulate private investment. Indeed, the Japanese economy has slowly started to recover and has shown signs of escaping from its long-term recession. Such signs include the weakening of the yen, rising stock prices, and improved conditions for employment. However, in addition to Abenomics, international affairs have also had an impact on the weakening of the yen and rising stock prices. Also, employment conditions improved largely due to changes in the population structure, rather than Abenomics. The decrease in the population lowers the potential growth rate. In Japan, the labor force is declining, wages are not rising, and private consumption is not increasing at all. As a result, people have not realized the boom Abenomics has brought. Knowing these problems, the Abe administration sought to change direction in 2016. The first stage of Abenomics, which focused on the problem of the lack of aggregate demand, tried to stimulate reflation with quantitative easing. However, it encountered some challenges and its limitations were revealed. The second stage of Abenomics focuses on labor reforms as a growth strategy in order to solve the constraint problem of aggregate supply. In the end, the success of Abenomics depends on labor reforms that aim to change Japans ingrained labor practices.