Japanese Prime Minister Shinzo Abe is set to unveil his second dose of monetary easing for the Japanese economy in the wake of disappointing economic data, but analysts are calling for a complete reassessment of his 'three arrow' approach to lift Japan out of its corrosive deflation and stagnant growth that has left the world's third largest economy under pressure for the past two decades.
Mr. Abe's three-pronged economic policy agenda, dubbed Abenomics, uses monetary easing, fiscal stimulus, and structural reforms as a way to end Japan's prolonged deflation and revive sluggish economic growth. Fiscal stimulus as shown through increased public expenditures in infrastructure and structural reforms, by way of increasing women in the workforce, have shown little improvements in reviving the economy. Furthermore, monetary easing efforts to combat deflation through the Central Bank of Japan's large asset buying program and negative interest rate policies, have proved ineffective, judging by the weak economic figures.
Japans economy stalled in the second quarter of this year, well below expected growth figures.The Yen saw a modest decline back in 2014 that helped reinvigorate its export driven economy and boost tourism, but the reality is that growth in real gross domestic product (GDP) has hovered between 0 percent and 0.5 percent since 2009 according to the figures.
Second quarter data of this year reflects that GDP grew at an annualized rate of 0.2% in the three months to June, below market forecasts for 0.7% and a marked slowdown from the 2% rate in the first quarter as per BBC. Other metrics emphasize its failing initiatives as private consumption, which accounts for about 60% of GDP, only rose 0.2% in the second quarter, compared with a 0.7% increase the prior quarter. Amid these dismal ongoing economic conditions, critics say Abenomics appears to be ineffective in providing stimulus to a stalled economy.
A piece by the BBC reports, "the main aim of Abenomics was to turn around the economy in a fundamental sense, so basically reform the traditional blockages to growth, and on that front we've seen very little progress." The piece claims that "basically the economy is riding on a wave of monetary stimulus but as soon as that wave loses momentum we will basically get back to where we were before." Japan continues to ramp up government spending, now carrying the largest public debt burden. If they don't jumpstart their sluggish economy and reassess their economic policy priorities soon, the country could face irreparable economic damage.
But with most of the headlines focusing on Japans monetary and fiscal efforts, and Mr. Abe set to launch another round of monetary easing, what may save the fading efforts of Abenomics and revive the economy might be structural reforms, or the demographics of Japan's economy.
Japan is one of the most rapidly aging populations. Without immigration reform or a way to get the older generation working longer, consumer demand won't expand and anemic growth will continue to plague the economy. If Mr. Abe doesn't address this deep rooted structural downside of the Japanese economy, monetary easing and rampant government spending could compound the economic difficulties facing Japan.
If Abenomics is to succeed and counteract the growing criticism it has received, Mr. Abe will need to address more then just increased public spending and negative interest rate policies to ramp up its economy. The reality of shifting demographics plaguing his labor market needs to be addressed by his cabinet if he wants to see any change, and keep Abenomics from fading into the horizon.
SOURCES:
https://www.bloomberg.com/view/articles/2016-08-11/abenomics-won-t-work-and-that-s-ok
http://www.japantimes.co.jp/opinion/2016/06/11/commentary/abenomics-failure-curse-japanization/#.V7XdipMrKHo
http://business.financialpost.com/news/economy/japan-in-transition-world-watching-to-see-if-abenomics-works
http://www.todayonline.com/business/japans-economy-stalls-april-june-casts-shadow-over-abenomics
http://www.japantimes.co.jp/opinion/2016/06/11/commentary/abenomics-failure-curse-japanization/#.V7XdipMrKHo
