“Abenomics“-The term’s origins come from Ronald Reagan’s economic policies, “Reaganomics”. Thus Prime Minister Shinzo Abe‘s economics are “Abenomics“. Shinzo Abe sought to revive Japan's economy through his signature economic strategy dubbed 'Abenomics' .

WHY “ABENOMICS”?
The first thing to note: Abenomics is packaged, and meant as a dramatic break from the prior situation. And the prior situation entailed:

Spending:

-Near zero growth for the past twenty years.

-Consumer spending stagnating, in part due to deflation.

-Depressed sentiment due to the 2011 Earthquake disaster and consequences resulting in a recession in 2012.

-Huge government debt due to inflagrate spending from the 1990s.

Monetary Situation

-Long term deflation.

-An overly strong yen, damaging exports.

Employment

-(Relatively) low unemployment BUT!

-Long-term concerns about labor availability as Japan’s population is declining.

-Increasingly clear shortages of labor in some areas (eg. construction).

-Low female labor participation rate.

-A large portion of the labor force trapped in non-formal employment with lower incomes and benefits.

Abenomics is certainly meant to be a dramatic break from the above-mentioned “lost generation”, especially after the damage from the 2011 Earthquake disaster. The major reason why Abenomics has been gaining so much attention is the fact that it’s a great contrast to what is happening in the rest of the world – especially in Europe. But to describe this we need to go into the details. So let’s start on the first arrow.

-The first arrow is aggressive monetary policy. “Monetary Easing” is a bit hard to explain without using economic jargon. Basically, the Japanese government is putting pressure on the Central Bank to flood the market with cash. The government has done this by nominating Haruhiko Kuroda to the helm of Japan’s national bank. He is much more open to monetary easing than previous leaders. If you compare the amount of money (money supply) in Japan’s economy from 2012-2014 (the present regime came into power in Dec ’12), you can see a clear increase over the past 2 years. To use a weird example, let’s say￥1000 is allocated to buy 20 Fuji apples. To boost the economy, the government is making the central bank release more money into the market so that ￥1500 is allocated to buy the same 20 Fuji apples.

Theoretically the (intended) effects of this are:

Since you have more money chasing the same apples, the price of apples is likely to increase. In the real world, this is meant to stoke a general increase in prices. This may sound bad but when prices decrease, consumers tend to save money to spend later, thus hampering growth. In other words, increasing price levels by creating more money may break the deflationary cycle and spur consumers to stop saving and start spending. There is ￥1500 floating around compared to say, US$ 100. The comparative value of the yen goes down. In the real world, because the yen becomes weaker compared to other currencies, Japan’s exports therefore become cheaper, thus probably boosting the amount that will be exported.

2ND ARROW: A “ROBUST” FISCAL POLICY

he actual word “robust” in Japanese is kidouteki 機動的きどうてき which is otherwise translated as “nimble, agile,” etc. But no matter the translation, the wording in Japanese (and therefore in English) is intentionally vague. The point is that the Japanese government is spending more, to boost the Japanese economy. Statistics from the Japanese government show that government spending has been clearly increasing over the past two years, each of which is setting new records in absolute government spending. Looking at this year’s budget we can also see that the main places this increase in spending is going toward is:

-welfare

-servicing the debt

-public works

The first is explained by Japan’s aging population, the second because Japan’s debt is already astronomical (albeit at a low interest rate) and the third is largely linked with infrastructure investment, particularly in relation to the Tokyo 2020 Olympics. At the same time however, the Japanese government simply cannot continue throwing money at its economy without finding new sources of income. Thus there was a move to increase the consumption tax to 8% this past April and a planned further increase to 10% by next year. In short, while trying to increase growth through government spending, the Japanese government is at the same time trying to rebuild their finances, or at least reduce their reliance on debt.

3RD ARROW: POLICIES FOR GROWTH TO SPUR PRIVATE INVESTMENT

This one’s a mouthful, but that’s what the Japanese title originally means. Actually – at least to me – this is more of a shotgun blast than an arrow. After all, as The Economist says here, “Part of its strength is its breadth: it is less a single arrow than a 1,000-strong bundle of acupuncture needles.”

So how is the Japanese government trying to spur growth? Below is a list of 5 of such needles that the Abe administration has launched:

-Lowering corporation tax * Corporation Tax has been lowered in April in this year by 2.4%. * This is in the hope that it makes business easier to do in Japan.

-Increasing the labor participation of women * Japan’s population and labor force is already declining. * Japan’s female labor participation rate is one of the lowest among the developed world. * Bringing women into the work force is a way to plug the labor shortage. * Policies for this include providing for more childcare workers and childcare facilities.

-More openness to foreigners in society * Fast-tracked permanent residency for “highly-skilled” foreigners. * Bringing more foreigners into Japanese universities through the G30 program (actually dates back to before Abenomics but is clearly aligned with it). * Push to send more Japanese students overseas with scholarships etc.

-Cool Japan * Push to export Japanese foods and other cultural products to the world and support for such corporations. * Measures to increase inbound tourism. Lowering of visa restrictions and introduction of duty-free shopping.

-Lowering of regulation / barriers * Free trade: Ongoing (and probably eventual participation) in the Trans-Pacific Partnership. * Lowering of barriers to foreign direct investment in Japan. * Deregulation in many industries such as healthcare, agriculture etc.

Some of these have been implemented already and some are still in the pipeline. Anyway if the previous two arrows are meant to prop up the Japanese economy in the short run, this “arrow” of a thousand needles is meant to secure Japan’s long term growth and economic health, and therefore needs time to take effect.

This is, by the way, what a lot of the commentary has been focused on. The first two arrows have their detractors from the academic and news worlds, but the third however runs up against vested interest groups such as Japan Agriculture and the doctor’s union. In addition, it’s not going to be easy to change cultural norms regarding the status of women. The success or failure of the third arrow will largely depend on how much the government bows to these groups’ interests and successfully causes societal change.