Since the end of 2012, the prime minister of Japan Shinzo Abe and his finance minister Taro Aso have started a new aggressive economic policy with the main objectives of ending the vicious circle of deflation in which Japan has been mired during the last 20 years, and achieving an inflation of 2%.
This economic policy is popularly known as Abenomics = “Abe + Economics” and is composed of three arrows “3本の矢”. There is a Japanese proverb that says “three arrows can’t be broken” 三本の矢なら折れない.
The three arrows of Abenomics:
- 1.- Quantitative Easing (量的金融緩和): the BOJ (Bank of Japan) leaves the interest rates near 0% and makes the money flow to commercial banks to create excess liquidity with the objective of promoting lending. With this objective, the BOJ is buying government bonds and Asset Backed Securities. The objective over the next years is to double the amount of money in circulation and as a consequence reach a 2% inflation target. Another consequence is that the yen has been depreciating fast against other currencies since the Abenomics measures started to be implemented.
- 2.- Fiscal policies to stimulate demand: investment in public works and renovation of infrastructure which is older than 50 years (built shortly after the Second World War) and fiscal deductions to companies that invest in R&D, that hire more employees, that pay higher salaries, that buy new equipment, etc. These measures aim to achieve an increase of investments, create jobs and increase salaries.
- 3.- Deregulations and creation of sustainable growth: of the three Abenomics arrows, this one is the arrow that is least concrete. As of now, there is a group of experts (mainly CEOs of large, medium and small companies) that will propose measures to the government over the next few years. This arrow includes plans to join the Trans-Pacific Partnership (TPP), a new free-trade agreement between countries in the Asia-Pacific region that would help Japanese companies export more.
The Triumph ladies wearing “Branomics”, holding two bows and with three abenomics arrows stuck to their stomachs.
The three Abenomics arrows follow ideas started by Keynes and whose most famous exponent nowadays is Paul Krugman. Some people say that it will work, but others say that it will end in a catastrophe because the future Japanese population will not be able to withstand an even higher debt although they can finance themselves emitting bonds in their own currency. As of now the negative consequences of Abenomics are an increase of the debt, a VAT increase from 5% to 10% (in 2015) and the depreciation of the yen (positive for exports). Another possible negative consequence is that inequalities in wealth distribution may increase.
For the moment it seems like prices in supermarkets are stable (we still haven’t noticed signs of inflation) but the Nikkei 225 index has started to notice the effects of Abenomics after several years of stagnation and it has risen more than 40% in 2013:
The good news for all those of you who plan to visit Japan this Summer is that according to a popular theory when the economy is going well the skirts length decreases (Skirt length theory). On the other hand when things go sour the economic situation affects women’s moods which decide to wear longer skirts. This theory is better explained in this CNN video:
“When the Nikkei is below 9,000 we wear long skirts, when it’s between 10,000 and 11,000 we wear knee-length skirts and when it is above 11,000 we wear miniskirts”
Video of the branomics presentation.