ContentWhat is Abenomics?
• The economic policies advocated by the Prime Minister of Japan, Shinzo Abe, since December 2012, based upon “three arrows” of monetary policies, fiscal policies and structural reforms.
Background• Economic context
Abe’s “Three Arrows”• Monetary policy• Fiscal policy• Structural reforms
Economic Outlook• Inflation• GDP• Unemployment rate
Shinzo Abe, the prime Minister of Japan, Dec.2012-PresentSource:https://en.wikipedia.org/wiki/Abenomics
Background
Years of Deflation
Consumer Price Index
19901991199219931994 19951996 199719981999200020012002200320042005200620072008 2009201020112012201320142015
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Source: Bank of Japan
(%)
Source: World Bank
GDP growth
“Lost two decades”
Secular stagnation
Three Arrows Approach
A• Monetary policy
B• Fiscal policy
C• Structural Reforms
Purpose:• Exit from Deflation• Boost Economic Recovery
Monetary Policy
Method: OMO– Quantitative and Qualitative
Monetary Easing(QQE) – Purchasing Japanese
government bonds (JGBs), exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs), CP and corporate bonds.
Source: Bank of Japan
“QQE”
Target: 2% inflation
Monetary Policy“QQE”
Effects-1Price
Quantity
DS1 S2
P1
P2
Source: Bank of Japan
Monetary Policy
Source: Bank of Japan
“QQE”
QQE Money Supply Depreciation
Export
Import
GDP
Inflation
Effects
Monetary Policy
Result: Did it reach 2% ?
Crude Oil Prices and Energy Prices
Consumer Price Index
Source: Bank of Japan
“QQE”
QQE Money Supply Depreciation
Export
Import
GDP
InflationOil Price
InflationOil Price
Effective from Feb.16.
Source: Bank of Japan
Monetary Policy“QQE with a Negative interest rate”
Effects– Negatively affects earnings
of financial institutions.– Positively affects borrowing
for property and business loans.
Fiscal Policy
Issues Increase in fiscal deficit and debt outstanding
– Debt to GDP ratio: around 240%
– Social security expenditures and national debt service increase year after year.
– Continues to run budget deficits where expenditure exceeds tax revenue.
Source: Ministry of Finance of Japan
“Consumption Tax Hikes”
Fiscal PolicyRaise consumption tax
– Raised consumption tax rate from 5% to 8% in April 2014. Plan to increase to 10% in April 2017.
– All of the increased revenue is used for Social Security.
Previous 5%
April 2014 8%
April 2017 10%
Consumption tax rate
Source: Ministry of Finance of Japan
“Consumption Tax Hikes”
Effect of the Consumption Tax Hikes – Raising prices and reducing
households' real disposable income.– Generating a increase in demand
prior to the consumption tax hikes, and a decline in demand after the consumption tax hikes.
– Affected consumption more negatively than explained by the decline in real income.
Fiscal Policy
Source: Bank of Japan
“Consumption Tax Hikes”
Estimated Effect of the FY2014 and FY 2017 Consumption Tax Hikes on GDP
Effects of the Consumption Tax Hikes
Structural Reforms
Source: The government of Japan, Japan’s cabinet
The most serious issue:
Lack of labor force
Labor participation in 2014
Women: 49.2%
Total: 59.4%Men: 70.4%
“Lack of labor force”
Structural Reforms
Solutions:
More female employees
More foreign employees
Is it effective?
Source: The government of Japan, Japan’s cabinet office
“Lack of labor force”Structural Reforms
“Lack of labor force”
Source: Bank of Japan
Structural Reforms
Inflation:
Economic Outlook
When can it reach 2%?
– 2015 → 2016 → 2017
– Effected largely by the crude oil prices
– Employees’ wages did not grow much
Source: Bank of Japan
“Inflation”
Economic Outlook
(%)
GDP growth: Why is Japan’s “Potential growth” rate so low?– Lack of labor force– Effect of stagnation
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
0.29
1.692.36
1.301.69
2.19
-1.04
-5.53
4.65
-0.45
1.751.61
-0.100.50
GDP growth
Source: World Bank
Source: Bank of Japan
(%)
Will Japan’s GDP grow quickly?– Unlikely, unless Potential GDP
grows
“GDP growth”
Economic Outlook
Source: Bank of Japan
Unemployment rate:Will it continue declining?
– Depends on GDP growth
– Won’t change muchLife-long employmentLack of labor force
“Unemployment”
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
0.29
1.692.36
1.30 1.692.19
-1.04
-5.53
4.65
-0.45
1.751.61
-0.100.50
Wrap-upConsumer Price Index
Source: Bank of Japan
GDP growth
(%)
Source: World Bank
Source: Bank of Japan
Thank you!