Japan's Abenomics: So Far So Good, But Will It Prevail?
The 2012 election gave Japan's LDP control of both houses of the Diet, with Shinzo Abe as the new leader promising to provide decisive and energetic leadership out of the malaise of the past two decades. The vision incorporated in his economic policy program, Abenomics, is to end the two decades of economic stagnation and resignation, revitalize Japanese enterprise, and halt population decline; these go hand‐in‐hand with his political/security desires to restore Japanese self‐confidence and
... ‐confidence and national pride, and make Japan an internationally‐ respected country. The three arrows of Abenomics--fiscal policy (the government's purview), monetary policy (Bank of Japan), and structural reform (private sector and government)--have had some initial success, but implementation will take years. Monetary policy has successfully halted deflation, but achieving and then sustaining an annual 2 percent increase in consumer prices will be a major challenge. Fiscal policy's major challenge persists: achieving sufficient private consumption and investment demand growth so that fiscal consolidation can be implemented. Structural reform to achieve growth requires a wide range of policies, so it is a thousand darts, not a single arrow. Abe's immediate challenge is how rapidly and how well the economy rebounds from the consumption tax increase, as he faces major policy decisions by year‐end or early next year. Perhaps the most important are whether to pursue the 2 percentage point consumption tax increase scheduled for October 2015, the planned cut in the corporate income tax rate, and whether an agreement can be reached in the Trans‐Pacific Partnership (TPP) free trade agreement negotiations.