Abenomics - Explained
What is Abenomics?
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Table of ContentsWhat is Abenomics?What are the Principles of Abenomics?Abenomics: ContextAbenomics: The ProgramAbenomics: The EffectAcademic Research on Abenomics
What is Abenomics?
Abenomics has its origin in Japan, it was advocated and enacted by Shinz Abe, a prime minister in Japan. Abenomics are economic policies used by Japan under the administration of Prime Minister Shinz Abe which pulled the nation out of the prevalent deflation it has suffered from. In a bid to pull Japan out of deflation, economic policies seasoned with structural reforms were developed. Abenomics is often seen as aggressive policies touching on the monetary and fiscal situation of the country. Abenomics as economic policies have to do with increasing fiscal stimulus and monetary stimulus in the country through government spending and unconventional central bank policy respectively.
Back to: ECONOMIC ANALYSIS & MONETARY POLICY
What are the Principles of Abenomics?
Majorly, abenomics rests on three vital factors aimed at pulling the country out of deflation it had consistently suffered from in the past decades. These three factors or basis are monetary inducement, fiscal stimulus and structural reforms. Abenomics was introduced by the Prime Minister in Japan, Prime Minister Shinz Abe at the start of his second term. Through these economic policies, Japan wishes to increase fiscal stimulus in the country through government spending and also achieve structural reforms in the Japenese economy. A structural reform (growth) strategy was devised by the Japanese government and this was complemented by an increase in government spending which in turn pulled the country out of deflation.
In Japan, the 1990s is tagged the lost decade because it was a period when Japan experienced an overwhelming stagnation economically. This resulted in enormous budget deficits on the part of the Japanese government. Quite a number of techniques have been deployed to jot the economy out of its unsavory economic situation by governments and economists in that period. For instance, in 1998. Paul Krugman, an economist opined that cutting long-term interest rates and increasing spending could help boost inflation expectations in the nation. A method of quantitative easing was also adopted towards the beginning of 2005 but this did not in any way ut an end to deflation. There were other attempts to salvage the economy recorded between 2006 and 2009.
Abenomics: The Program
Shinz Abes first tenure as Prime Minister was between 2006 and 2007 but when he resumes office for a second term in 2012, he came along with economic policies that would serve as solutions to deflation Japan has been experiencing. In order to revive Japans stagnant economy, he enacted Abenomics. Abenomics as an economy revival strategy has three main components, these are, monetary policies, fiscal policies and structural reforms or growth strategies. The monetary policy revolves around the production of additional currency which was between 60 trillion yen to 70 trillion yen and the second policy is to increase government spending which would in turn create aq fiscal stimulus. The third component of Abenomics is one that requires significant change occurring to industries and corporate establishments in Japan.
Abenomics: The Effect
The Abenomics policies are not without any effects on the Japanese economy. In May 2017, Japans preferred inflation metric was a 0.1% rate but Japan run at an annual rate of 1.2% which is a development compared to the underlying rate. There are significant effects of Abenomics in Japans, one of these is that companies, manufacturers and producers devised ways to decreasing the quality of the products as well as quantity instead mon increasing the princess of the products. Despite some drawbacks of Abenomics, Japan was regarded as primed for inflation as of 2017, this is contrary to global economic backdrop that has little support for inflation.
Academic Research on Abenomics
- Abenomics: preliminary analysis and outlook, Hausman, J. K., & Wieland, J. F. (2014). Brookings Papers on Economic Activity, 2014(1), 1-63. This paper explains how Abenomics ended deflation in Japan in 2013 and raised long-run inflation expectations. The estimates suggest that Abenomics raised 2013 output growth by about 0.8 to 1.8 percentage points. The paper concludes that in the medium and the long run, Abenomics is likely to continue being stimulative even though currently it appears to likely to fall short of Japan's large output gap.
- An analysis of challenges faced by Japan's economy and Abenomics, Yoshino, N., & Taghizadeh-Hesary, F. (2014). The Japanese Political Economy, 40(3-4), 37-62. This article describes Abenomics which involve the economic policies proposed by Shinzo Abe who became prime minister for the second time in December 2012. Abenomics is distinguished by a set of policies that involve aggressive monetary policy, fiscal consolidation, and a growth strategy. This article explains the three aspects of Abenomics.
- Response of asset prices to monetary policy under Abenomics, Ueda, K. (2013). Asian Economic Policy Review, 8(2), 252-269. This is an investigation of the causes of the new sharp response of the yen and Japanese stock prices to the discussion of as well as the subsequent implementation of bold monetary easing by the Bank of Japan as required by Prime Minister Shinzo Abe. It also points out the possibility that investor behavior may not be based on economic fundamentals.
- Abenomics: Why was it so successful in changing market expectations?, Fukuda, S. I. (2015). Journal of the Japanese and International Economies, 37, 1-20. This is in an explanation of Abenomics that refers to a recent and unconventional economic policy regime since late 2012 and consists of three economic policies. After the introduction of this regime, the stock and foreign exchange markets reacted favorably, and this paper attempts to investigate the reason as to why they did so.
- Japan in 2013: Abenomics and abegeopolitics, Inoguchi, T. (2014). Japan in 2013: Asian Survey, 54(1), 101-112. This paper explores the challenges and complexities that accompany the Japanese Prime Minister Abe Shinzo's Abenomics and Abegeopolitics approaches that are built to give momentum to the economy of Japan and restore its strength and national pride.