Japan and Abenomics: The way out of the abyss

Abenomics: Japanese policies in the last two years

In this blog, we shall bring to you a popular GK topic – Japan and Abenomics. The Land of the Rising Sun had only seen the highs till the 1980s and till then it was the economy that all analysts were watching closely. Funds flowing into Japan from investors across the world had increased the asset prices to a level where it became unsustainable. The bubble finally burst to never recover from it, this holds true both for the real estate and the stock prices. The Japanese economy has not been able to recover from that downturn even today. That can be termed as the nadir for the Japanese economy in recent times.

At the time the Japanese economy was in the midst of an upsurge so as to become the largest economy in the world within a decade. The United States’ was the largest economy in the world at that time. The economy of Japan was seen as the one with the right kind of mechanisms for success. The finance for organizations came from a bank that was supported by it.

Abenomics: A lowdown

Abenomics in the recent past has been seen as the saviour for the economy that has only seen a slide in inflation and then deflation in the recent times. The myriad steps taken by Shinzo Abe have not borne fruit. These include lack of increase in inflation which is the issue at the centrestage for economies around the world. It is the interplay of interest rates and inflation that has been the talking point around the world for the last few years as policy has focused on inflation targeting. The 2% target set for inflation in 2015 was not achieved and stimulus has been given in form of Abenomics. In European countries too, negative interest rates too have become a norm and the desired end result is the only that of an increase in inflation. A deflation or decrease in inflation affects the economy as a whole as a slightly higher consumption and even Government spending is not able to help the economy as prices remain depressed and production is only likely to come down.

Creating a Conducive Environment for Abenomics

 Abenomics came into being as a set of policies with a stimulus package of $1.3 trillion in 2013. In continuation of those policies, a second quantitative easing plan amounting to another $1 trillion of bonds and asset buying was unveiled in July, 2013.

In the last few months, Japanese Yen has seen appreciation owing to the inflow of funds post Brexit. This was only expected considering that the Japanese currency was seen as a safe haven for investment post the referendum on the decision to stay within the European Union. As is the problem associated with appreciation of a currency, imports have become expensive and exports also do not draw in that much of foreign currency.

Abenomics policies meant to jack up the inflation number for the Japanese economy could not have yielded the desired results if the requisite support does not come from the monetary policy. The monetary policy support comes from intervention in the currency market wherein the dollars are bought and Japanese Yen is sold. This supports the policies as Government spending and personal consumption in the country can form the backbone of the policy framework that is required for bringing the long held-back and sluggish economy back on track.

Hope the above piece provided you with an understanding about – Japan and Abenomics in a manner that you could answer an interview question on the same. We wish to help you at every step of your entrance preparation. All the best!