5/8/2015
Japan / Economics
Japanese Prime Minister Shinzo Abe enacted bold economic reforms in a bid to revive growth. But do the reforms have teeth?.
Japan has been drifting in the economic doldrums for years, beset by falling productivity, waning competitiveness, deteriorating fiscal imbalances, and bedevilling deflationary pressures. Against this, the government of Prime Minister Shinzo Abe won office in late 2012 with a pledge to put the economy back on a path of growth. It launched its ambitious “Abenomics” programme made up of flexible fiscal policies and bold monetary expansion led by quantitative easing on a massive scale.
The results have been mixed. Some progress has been made. But there have also been setbacks and many complications, such as a general slowdown across the globe and a plunge in oil prices.
To date, Japan’s economic recovery has been modest, but it is also fragile. And that fragility has been a problem for the pace of Abe’s reform push. When the government raised the national sales tax rate by a few percent in 2014, growth collapsed dramatically and the economy fell into recession. Abe called, and subsequently won, a snap election, but only after he postponed plans for a second sales tax hike until 2017. Delaying this key revenue stream, however, could set back the government’s aim of achieving fiscal consolidation by 2020.
Things get even trickier when reform goes beyond policy management. To change and prosper, Japan must overcome some deeply ingrained societal and structural barriers, and attitudes.
With its ageing population and low birth rate, the proportion of productive workers among Japan’s people is shrinking year by year. To beat this, older workers may have to be pressed into keeping their jobs for longer, and more women encouraged to enter the workforce. Immigration – strictly limited by a country that sees itself as a largely homogenous society – might have to be opened up for skilled foreign labour. And, the long cherished Japanese ideal of having a job-for-life might have to go.
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