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Abenomics: Economic miracle or people pleaser?

Updated: 2013-12-16 13:06
( Xinhua)

TOKYO - Japan's concerted efforts to escape from the doldrums of decades of deflation and reduce its public debt burden at twice the size of the nation's economy have been packaged into a well-publicized policy initiative spearheaded by Prime Minister Shinzo Abe and dubbed "Abenomics".

The three-pronged strategy to kickstart the world's third- largest economy has involved massive amounts of fiscal stimulus and moves by the central bank to ease monetary policy to fortify expenditure by multi-sized corporations and emerging enterprises here, as increased deregulation has sought to encourage more investment in "special zones" by making more capital available to startups and businesses looking to relocate to, or expand in Japan.

Investor optimism and appetite has been lifted to a degree on the back of the government's fiscal moves in twine with the Bank of Japan (BOJ) and has been reflected and bolstered by a relatively bullish stock market and underpinned by a consumer price index which indicates the nation is moving in the right direction away from deflation, as consumer costs chart an upward trajectory.

But the road ahead remains a potentially fraught one for such an aggressive policy initiative, with the central bank under intense pressure to hit the government's 2 percent inflation target in 2014, meaning the BOJ will almost certainly have to roll out further fiscal stimulus measures to engineer the achieving of this target, or risk losing investor confidence at a precarious time, as Abe seeks to hike the sales tax from 5 percent to 8 percent in April 2014 and to 10 percent a year later.

"Public works spending has increased and tax breaks offered to spur companies to increase capital expenditure and encourage wage hikes, which is all good in theory. Macroeconomic data over the year has also revealed that for the time being, all-in-all, Japan' s economy is moving in the right direction and along the lines of Abe's aggressive policies," Laurent Sinclair, a Pacific Affairs research analyst, told Xinhua.

"But the questions on all economists' lips are, 'Is the embryonic uptick sustainable, have the right mechanisms been put into place to cushion the inevitable toll the tax hike will take and will Abe's third arrow -- structural reform -- the most critical prong in the Abenomics approach, be achieved in a pragmatic and sustainable manner to underpin the entire economic reformatory process?'" Sinclair said.

Sinclair intimated that the first two prongs of Abe's approach seemed to be hitting their targets, with massive amounts of quantitative easing being somewhat successful in buying up government debt and helping reverse the nation's decades-old deflationary cycle, as well as weaken the yen and give a lift to export-dependent Japan, which relies on a weak yen to boost profits made overseas when repatriated into the Japanese currency.

He added, however, that the realization of structural reform would be where the true miracle lies and, as yet, this remains to be seen.

Abe's has embarked on an ambitious plan to revamp Japan's healthcare industry, energy industries and the IT industry in a bid to ensure a sustained economic growth through the waning effects of quantitative easing and beyond the inevitable downturn sparked by an increase in consumption tax that will curb consumer appetite to spend in the short term.

Other endeavors include plans to augment engineering companies' abilities to export nuclear and high speed train technology abroad, as well as actively increase the number of female workers that comprise Japan's soon-to-be-dwindling labor force.

The latter, recently dubbed "Womenomics," reflects a growing belief that female workers could be the key to the success of Japan's economic future.

Abe has publicly stated that females in this country are Japan' s most "underused resource" and this demographic must be tapped for the future good of the country's economy.

For this to happen there needs to be a huge ideological shift, right through the core consciousness of Japan Inc. -- the traditionally conservative domain of men -- and the lure of managerial-level positions in companies for women for this to take place. This, however, could be a paradigmatic shift in Japan's workplace that some economists and sociologists think could take decades.

To this point, recent statistics have shown that women account for around 12 percent of those holding management-level positions in Japan and the Gender Equality Bureau of Japan's Cabinet Office has compared this figure to 43 percent in the United States, 39 percent in France, 35 percent in the Britain, and 30 percent in Germany. Japan is clearly trailing far behind other developed nations in this regard.

But Abe intends to address this imbalance by implementing practical measure to make it easier for women to commit to careers, by facilitating the building of more child care centers and upping those actually wanting managerial jobs from one in 10, according to a poll by the Japan Institute for Labor Policy and Training, who cited the low numbers being due to women finding it hard to " balance work and family."

"For Abe's third arrow to hit its target, the government will have address the not so favorable socioeconomic backdrop as Japan' s society is rapidly aging while simultaneously shrinking, meaning a diminished workforce and the need, for example, for more women to be incentivized to work after marriage and return to work after having children," Philip McNeil, an author and commentator on Japanese socio-political issues, told Xinhua.

"So this reform process, that has been engineered on the premise of a shifting dynamic in the labor market, increased consumer spending and an inevitable rise in interest rates, if it fails, could actually dig the nation deeper into debt and this is why there is so much hinging on these reform policies," he added.

"It is because of this that we cannot, as yet, say that Abenomics is a success. That judgment can only be made further down the line. For the time being it's still a big gamble as there are so many intangibles that can only be speculated on and not quantified. There is still a lot of conjecture," said McNeil.

Echoing McNeil, other experts on the matter have also noted that while Abe's decision to join the U.S.-led Trans-Pacific Partnership (TPP) regional free trade agreement could theoretically boost Japan's international trade marker to 70 percent from a current 20 percent under the new agreements, the nation's sensitive agriculture sector could suffer from increased free market competition if the industry's sky-high tariffs are removed, meaning the government would have to make fiscal provisions to support this sector which could add to the draining of national funds and in doing so further contribute to state debt woes.

"It's fair to say at this point that Abenomics has gone beyond being merely a buzzword or a people pleaser, as there have been some significant moves. We've seen the yen weaken, boosting exports but at the same time import costs have skyrocketed, especially for fuel, as Japan's nuclear stations are still offline and this has caused a strain on Japan's (trade) balance sheet," McNeil said.

"Yet, it's far from being an economic miracle as there are so many paradoxes. A weak yen is helping exporters, but pushing up the price of imports, and the aggressiveness of Japan's monetary easing has encouraged corporate Japan, but distorted financial markets and unsettled bond markets. If Japan can survive the tax hike and continue to spend and employ, then we can start to use the word"sustainable" until then Japan is still on "reasoned hope mode," McNeil concluded on the nation's economic situation going forward.

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