Last week Japan elected Yoshihide Suga as its new prime minister, after the resignation of Shinzo Abe in late August. Although recently overshadowed by the COVID-19 pandemic, Abe’s legacy has been characterised by aggressive economic policies — Abenomics. Abenomics became synonymous with the former prime minister’s attempts to revive Japan’s long stagnant economy, mainly by increases in inflation. During Abe’s almost eight years in power, the Nikkei index, which tracks the performance of 225 large Japanese PLCs, has more than doubled; but many still feel his policies fell short of the economic revival he envisioned.
Refresh this chart in your browser | Edit the chart in Datastream
Abenomics experienced initial success. During 2013, Japan’s economy benefited from a devaluation of the yen and a soaring stock market as billions of dollars were pumped into the economy, and expectations of a successful inflationary policy rose. Exports rose as Japanese goods became relatively cheaper, and investment grew rapidly. The government attempted to take advantage of the improving situation by increasing consumption tax to shrink the budget deficit — a bold move, as a similar announcement had contributed to the previous administration losing power in late 2012. However, economic successes had not translated into higher real wages and, as a result of the tax increase, consumption fell. This fall in consumption helped trigger a recession in 2014, just two years since the last, and dashed hopes of a resurgent inflation rate.
Refresh this chart in your browser | Edit the chart in Datastream
Want more charts and analysis? Access a pre-built library of charts built by Fathom Consulting via Datastream Chartbook in Refinitiv Eikon.
One of the biggest challenges for Abe’s administration was to spur greater investment from the private sector through structural reform. While economic stimulus from the government helped corporate profits to surge, the growth in gross fixed capital formation (GFCF), a measure of investment, was small by comparison. The lack of investment hints that firms continue to harbour doubt about the future performance of the Japanese economy, doubt which even the ambitious, growth-centric policies of Abenomics have failed to dispel. The problem of high savings no longer just affects the corporate sector; since the start of Abe’s second term in office, average household savings have jumped from just over 400,000¥ to almost 550,000¥.
Refresh this chart in your browser | Edit the chart in Datastream
Already under pressure from a further tax hike last year, the economy has been tipped into a deep slump by the effects of COVID-19. The country recorded its fastest ever fall in GDP in the second quarter of 2020, recording an annualised fall of 27.8% from the previous quarter. One of Abe’s last major actions whilst in power was to introduce a colossal stimulus package of over $1 trillion which, when added to similar measures enacted earlier, brought the total government spending on combatting COVID-19 to around 40% of GDP. This huge fiscal injection will significantly worsen the government’s already high budget deficit.
Abenomics has not balanced the books or spurred higher growth in the way many had hoped. Abe’s successor will still be faced with many of the same issues Abe faced when he took office in 2012. Japan still suffers from high public debt, low inflation and a bleak growth outlook, under pressure from changing demographics.
Refresh this chart in your browser | Edit the chart in Datastream
________________________________________________________________________________________
Refinitiv Datastream
Financial time series database which allows you to identify and examine trends, generate and test ideas and develop view points on the market.
Refinitiv offers the world’s most comprehensive historical database for numerical macroeconomic and cross-asset financial data which started in the 1950s and has grown into an indispensable resource for financial professionals. Find out more.
