‘Abenomics’ policies struggle as Japan slips into its fourth technical recession in five years

Japan slipped into its fourth technical recession in five years between July and September, spotlighting how ‘Abenomics’ policies by the government have struggled to drag the economy out of chronic stagnation.

Official data yesterday showed the third-largest economy in the world shrank an annual 0.8% in July to September after a 0.7% contraction in the prior quarter, putting it firmly into recession, two consecutive quarters of declines.

Yesterday’s data highlights the need, analysts say, for structural reform aimed at breaking through supply-side constraints including labour shortages in a fast-ageing society, which suffered from chronic deflation for more than 15 years.

“Abenomics’ first two arrows of monetary and fiscal stimulus were meant to buy time, but Japan failed to make progress with painful reforms needed to boost its growth potential,” Hiroshi Shiraishi, senior economist at BNP Paribas Securities said.

“Without reform [the ‘third arrow’], the economy’s growth potential remains low, making it vulnerable to shocks and to suffering recessions more often.”

Economics minister Akira Amari, at a news conference after the data was published, noted a shortage of labour available for public works projects to stimulate the economy, highlighting a major constraint policy makers face, not enough suitable workers to build growth.

Amari nodded when asked if he saw “no need” to craft an extra budget to stimulate demand right away, despite US treasury secretary Jack Lew proposing earlier that Japan should provide more fiscal support to ensure it returns to growth, led by domestic demand.

Amari urged firms to use record cash holdings to raise wages and boost capital spending.