Abenomics fails to deliver as Japan braces for post-Abe era

Japan's Prime Minister Shinzo Abe bows his head as he says he is stepping down. Picture: Kyodo/via Reuters. 

Japanese Prime Minister Shinzo Abe's signature shock-and-awe 'Abenomics' stimulus strategy was already faltering even before his decision yesterday to step down due to health reasons.

That blunt assessment by many Japan observers underlined the daunting political challenge Abe has faced in his efforts to pull the economy out of decades of economic stagnation.

And the coronavirus crisis may have just put the final nail in the coffin to his 'three arrows' reform programme as the economy sinks deeper into recession, analysts say.

After sweeping to power in late 2012, Abe deployed his three arrows of Abenomics - large-scale monetary easing, fiscal spending and structural reforms - to reignite the world's third biggest economy after years of subpar growth and falling prices.

There were some quick-hit successes.

Stimulus programme weakens currency 

The Bank of Japan's "bazooka" stimulus programme lifted business sentiment and helped weaken the yen, giving exporters windfall profits that trickled down to wages and new jobs.

Corporate governance reforms drew in huge amounts of overseas money, pushing up foreign ownership of Japan's listed stocks to a record 31.7% in 2014 from 28% in 2012. It stood at 29.6% in 2019.

"We were able to end 20 years of deflation with the three arrows of Abenomics," the prime minister told a news conference on Friday announcing his resignation, when asked what he thought were his legacies.

But Abe will leave behind a pile of unfinished business for his successor.

"The focus at the moment will be on the coronavirus recovery and controlling the infection, regardless of who will be the next prime minister," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"There has been talk that Abenomics has been having a harmful impact, so I think the focal point will be on suggestions how to make changes to it."

The biggest disappointment for the prime minister, and many Japan observers, is that the third-arrow reforms to reshape an economy hobbled by low productivity, a rapidly ageing population and a rigid labour market, have proved elusive.

Reuters