2016 Reports

Japan’s Abenomics Bumps Along

Patrick, Hugh T.

Japan again seems to be breaking out of the doldrums it has been in since the early 1990s. In this paper, I begin by assessing the past year ending in summer 2015. I first consider the economic situation; Japanese trade policy, specifically its involvement in the TPP and AIIB; and the latest political developments, particularly the results of Abe’s snap election of December 2014. I then examine the international and regional financial context, with China and India leading regional economic growth. Following this overview, I delve into the goals and progress of Abenomics: ending deflation and achieving 2 percent inflation; achieving 2 percent growth by increasing productivity; dealing with Japan’s huge debt with flexible fiscal policy; and addressing Japan’s low birth rate by increasing fertility and promoting women’s rights. I focus especially on the third arrow of Abenomics – achieving sustained growth – by making difficult structural changes, notably opening up markets in historically-protected sectors such as agriculture and healthcare, as well as more modest initiatives in corporate management and governance, promoting information technology, opening Japan to 60,000 foreign skilled workers a year, and strengthening the university system by creating distinguished graduate schools and special research institutions. I then consider further specifics about corporate governance, which Abe has made a focus of his efforts. Finally, I examine the vast changes occurring in Japan’s energy sector, which hold much promise with the development of renewable technologies and possible restarting of its nuclear plants – idled since the Great East Japan Earthquake in 2011 – but which also faces many challenges, considering Japan’s dearth of natural resources and subsequent vulnerability to the vagaries of global markets.