Chief Cabinet Secretary Yoshihide Suga was officially confirmed as Japan’s new prime minister on the 16th of September 2020. This confirmed the end of Shinzo Abe’s near eight-year reign which was a sudden halt three weeks earlier to his resignation announcement on the grounds of health reasons. Abe’s departure marks the end of his second period as prime minister, having initially led the nation in 2006-07 and then for a much longer stint beginning at the end of 2012. In his second term he had introduced Abenomics to the desperate country to shake itself out of the long running economic malaise. He stood proudly on the floor of New York Stock Exchange a year after his Abenomics and urged the investors to buy it. Abe’s much-discussed strategy hinged on three main policy “arrows”: aggressive monetary easing, fiscal consolidation and structural reforms to boost competitiveness and economic growth. Designed to jump start the Japan’s economy after facing two decades of tepid deflationary growth. By the early-2000s, the economy was granted some respite through a wave of government bailouts for troubled lenders and the emergence of China as a global economic force, which eased the pain for manufacturing exporters. But despite the modest recovery during this time, the economy remained largely stagnant as low growth and chronic deflation persisted. Abe marketed his three prolonged policy as one such policy which would end this deflationary cycle and give Japan its first shot towards economic revival. The government’s relentless spending to stimulate growth, coupled with its insistence on keeping taxes low, which meant that it ended up running a massive fiscal deficit year after year from 1991 onwards. When the Abenomics was introduced Japan was already in massive debt at 232 per cent of GDP. And thus Abenomics was at the least moderately effecting and plugging the fiscal hole.
But Abenomics failed to bring a reduction in the Japan’s overall public debt ratio. Japan’s gross government debt ratio was around 230 per cent of GDP at the end of 2019 and it is highest ever record in the Fitch rated sovereigns, Fitch is one of the leading ratings industry. But there certainly was some wins for macroeconomic front of which Abe can certainly be proud. Shigeto Nagai, head of Japan economics at Oxford Economics stated that “Abenomics has been effective in supporting large firms by boosting equity markets and nurturing the sense of stability that a sharp appreciation of the Yen will not happen again. During Abe’s time in office, the profitability of large firms has risen significantly, by expanding their business abroad.” The unemployment rate came down from 4 per cent to near 2.2 per cent before the pandemic stuck. “Abenomics did create growth and avoided the worst-case scenarios for (the) Japanese economy,” Josh Lipsky, director of the global business and economics program at think tank Atlantic Council, told CNBC in early September. While it had such notable successes, inflation remained below target and debts remained at sky high and reforms weren’t delivered as much as it was hoped to deliver. Abe implemented key governance measures designed to boost the profitability of Japanese firms and, in turn, attract more foreign investment, including raising the number of independent external directors, requiring the disclosure of risk-management and governance policies, strengthening external monitoring processes and improving accountability to shareholders.
But if viewed in a global context, it can regarded with more positive approach. Many economies are struggling with chronically low inflation and mounting public debt, while key reforms in some countries have delivered similarly lackluster results. As such, Abenomics distinctly remains a work in progress.
