As Abenomics falters, problems fester


Was it really only two years ago that “Abenomics” became a new staple of the Japanese vocabulary? Actually a bit less – the electoral triumph that catapulted Shinzo Abe into his second prime ministership occurred in December 2012.

“Abenomics” seemed to signal a reinvention of the “gray science” of economics and, simultaneously, a reinvention of Japan, so long stagnant but now at last, under a vigorous new leader with new, trailblazing ideas, about to roar back to its rightful place in the world.

The media played along as long as it could, but by now the bloom is clearly off the rose, declares Friday (Nov 7) in chorus with most of the other weeklies.

There were critics at the outset who said Abe’s animated salesmanship was too simple to be true, but the suddenly cheap yen did seem to fuel a recovery. Prices rose, corporations waxed enthusiastic, stocks soared. Had Japan at last shaken off its doldrums?

No, say Friday, it had not. Beneath the bubbly surface the less glamorous elements of Japan Inc – small and medium-size businesses, ordinary consumers – were feeling a tightening pinch that the optimists chose to ignore or downplay. That can’t continue indefinitely. Abenomics’ honeymoon lasted a long time but seems finally over.

Friday cites some figures. In Tochigi Prefecture, north of Tokyo, incomes declined 7% over the past year. Nationwide, according to the Teikoku Data Bank, 35 importing firms went bankrupt in August, as did 52 more in September.

“The idea that the cheap yen would solve all problems was an illusion,” the magazine hears from financial journalist Tomoyuki Isoyama.

It solved some problems for some sectors, if only temporarily. Exporters were Abenomics’ biggest boosters – the low yen made them more globally competitive, though not as dramatically as had been hoped, since many of them had already transferred their manufacturing operations overseas to escape the effect of the pre-Abenomics high yen.

Smaller businesses, meanwhile, suffered from the rising costs of imported raw materials – fuel in particular – which, being small and therefore locked in fierce competition, they could not simply pass on to their customers. The rising bankruptcy figures are a reflection of that harsh reality.

“A true growth strategy,” says Shinshu University economist Akio Makabe, “would have involved structural reforms beneficial not only to the biggest corporations but also to smaller businesses and the outlying regions. Ideas currently on the table – casinos, special economic zones – do not fit the bill.”

As Abenomics falters, problems fester. Everybody know what they are – the rapidly aging population with its attendant rising social welfare costs, and a seemingly intractable public debt, the impetus behind last April’s unpopular consumption tax increase and the driving force behind talk of another one next October. Local elections loom next spring. Friday fears a plethora of golden promises – regional subsidies, special tax breaks, “whatever it takes to win popularity” – that will turn out either meaningless or fiscally destructive.

Such, Friday seems to be saying bleakly, is the state of Japanese politics. In the absence of an electable opposition, Abe and his Liberal Democratic Party seem unchallengeable for the foreseeable future, and in the absence of an alternative to Abenomics, that future looks uncertain indeed.

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Reliance on government to improve economic conditions? I think not. Those in government like Abe in Japan, the Bush family in the US and Cameron in the UK show politics to be a profession for self enrichment. We should all remember what the definition of 'to govern' means and what government really does......

9 ( +11 / -2 )

The crisis is still global, and all the politicians around the world seem unable to do the right move, specially in the old industrialized countries, where people have to accept the fact their economy will be stagnant for many years.

1 ( +3 / -2 )

I remember 2 years ago when the cheaper yen was supposed to save the day. All of Japan's problems were due to the weak yen, that's basically what Abenomics has been, quick devaluation to boost exports and kickstart the economy. The result of Abenomics on salaries is mind-blowing. With the weaker yen, a job in the U.S/Canada pays about 50% more than a similar job in Japan. Abenomics might eventually kick Japan out of the club of developed nations when average salaries in North America become twice those in Japan.

35 importing firms went bankrupt in August, as did 52 more in September.

The yen is almost 113 as I write this, 115 is in sight. Abenomics is destroying Japanese citizens' buying power. More bankruptcies on the way...

12 ( +14 / -2 )

Abenomics is the new buzz word for financial failure.

"Acme Co. went belly up!"

"Really? What happened?"



7 ( +9 / -2 )

Beneath the bubbly surface the less glamorous elements of Japan Inc – small and medium-size businesses, ordinary consumers – were feeling a tightening pinch that the optimists chose to ignore or downplay. That can’t continue indefinitely. Abenomics’ honeymoon lasted a long time but seems finally over.

No surprise here. Sure some high-flyers -- big export-oriented companies and rich folks with money in the stock market -- made a killing. But the average person has simply seen fuel and food prices sky rocket. While the debt just got higher and higher.

7 ( +11 / -4 )

I agree with kurisupisu, except he got the US president wrong. Obama has been president for 6 years now. People need to get over the childlike illusion that the government is there to help anyone but themselves.

-1 ( +1 / -2 )

The structural problems have not been addressed.

Japanese businesses are no longer as internationally competitive as they used to be. Prices are mismatched with wages. The aging population is a huge issue. Overcrowded cities with overly high rents and property values are another. If the younger generations can't get off the ground and reach cruising altitude, everything's going to keep falling apart.

It's not a function of QE and it's not a function of currency manipulation. It may not even be a function of the consumption tax. It's purely structural--and the structure is not looking good.

13 ( +14 / -1 )

LBW hits the nail on the head. Abenomics was supposed to be a three-pronged policy with the monetary and fiscal policy providing the initial jolt to get a bit of momentum. The third, most-important, and hardest to accomplish plank was always going to be the structural reforms. And the structure of the economy is not looking good.

While there have been some moderately positive tendencies with respect to child-care initiatives, the structural outlook is not really all that good. If Japan cannot even adopt a no-brainer like the TPP because of the strangle-hold of JA on the outlying regions, the govt. is really not in control of it's policy, which is disappointing.

My biggest fear is that Abe will abandon structural reform to stay in power, the govt. will collectively put it's head in the sand for another 10 years, and the debt will keep racking up as we steal from the young to give to the pensioners (who were the very ones who benefitted from the Bubble....). In short, a slow slide into oblivion....

3 ( +4 / -1 )

I still support Abe, because at least he's doing SOMETHING. For all we whine about our leaders in the U.S., be they Republican or Democrat, at least they usually LEAD somewhere (the current do-nothing Congress notwithstanding).

I firmly believe that Japan needs to have its famous companies profitable if its "brand" in the world is to maintain position. Therefore the weak yen is good, it means that companies can show profits much more easily. My company's profits are up, and we'll be paying a lot more in taxes and hiring 1-2 new people soon, though we're an export company so that doesn't apply to everyone.

-9 ( +5 / -14 )

Yet the very idea of bringing in a significant migrant population is still met with reticience by the government, as half-measures and platitudes remain the modus operandi.

2 ( +2 / -0 )

@Peter Yup, at least they are doing something. And honestly the current exchange rate for the yen still isn't back to pre-2008 levels yet, so the fact that some import companies went bankrupt , means they were only profitable due to an unusually strong yen.

If you can't switch your business method, stay flexible, and stay competitive due to the exchange rate, then those businesses were doomed to begin with.

Even when the yen was at 77 per 1 USD, I was still able to pull in the good profit margins, and I too am in exports. So if I can stay in business even when the conditions sucked for export companies, than why can't the importers adapt to a 110 yen rate ?

-5 ( +1 / -6 )

In Tochigi Prefecture, north of Tokyo, incomes declined 7% over the past year

But the BOJ half-wit Kuroda keeps saying wages are going up, even though his bank's own data contradict that. It's about time some "journalists" challenged him on the rubbish he spouts.

3 ( +4 / -1 )

From a long term perspective no matter what policies are enacted a couple decades out the declining and aging population is going to tip the scale. What happens now will at best potentially only slow that effect.

The Japanese people simply need to have more kids. This is not something the government can legislate. It is a mix of cultural ideas about loyalty to company and the ideal family size among other things that prevent people from having children. Until this changes I don't see Japan's economy turning around. They were #2 for years, they will probably slip dozens of spots down.

4 ( +4 / -0 )

It feels like watching the domino effect. More problems began to arise since the incident with Obuchi.

0 ( +1 / -1 )

"Abenomics" has never really been a success at all for most of the people here even in its first year. It's been good only for some big export-orientated corporations and their stocker holders. It has done nothing to improve the lives of most Japanese people. It's the mass media that has so far made "Abenomics" look good. There is a noted Japenese economist, who has all along refused to use the term "Abenomics " and called it "aho-nomics" instead. "aho" is a Japanese word, meaning stupid or silly. She has been increasingly proved right.

6 ( +7 / -1 )

though we're an export company so that doesn't apply to everyone.

Ya think? That's the whole point of the article -- only export-focused businesses have seen any real impact of Abenomics. Of course your sales and profit should be up. For the same $1 in sales you are now getting 10% more in yen. Doesn't take a genius to manage that kind of situation.

-3 ( +1 / -4 )

still time to change yen into other currencies. 113-1 to the US Dollar is a dream in a few years.... 150-1 more realistic

1 ( +1 / -0 )

Well yakimo, I'd be surprised if any foreigners are still holding onto the weak pathetic yen, apart from that needed for everyday necessities. At least, everyone I know changed their yen holdings into dollars and swiss francs long ago when the yen started its plummet from 80 to the dollar level. To hold yen is just financial suicide and the height of stupidity now.

3 ( +6 / -3 )

Should read; 'Problems falter as Abenomics festers...'

1 ( +2 / -1 )

The only way the Yen will strengthen from here is if the USA has another massive recession... beyond that... the Yen might weaken to 130 within the next couple of years.

-1 ( +0 / -1 )

Come on children and students of Japan....Many years from now when you are unemployed, unmarried and unhappy, blame it on AHONOMICS. I hope this new Japanized term will be as popular as other native born negative terms now found in some dictionaries...Amakudari, Karoshi, etc.

5 ( +7 / -2 )

Bankruptcy caused by weak yen increased 2.4 fold compared to last year. Things are going as abenomics planned.

2 ( +4 / -2 )

So doing something bad for most people is better than doing something which is so so? Comments from selfish people. I wish we had an "Iwog" here, but I digress,

0 ( +0 / -0 )

What people have to understand is the government is a business itself. The product is the people the government will never go broke as long as people are alive working and paying taxes.

2 ( +2 / -0 )

If you have got a pile of yen sitting around, it may be prudent to put at least some of it offshore. You still of course should keep sufficient funds in Japan for any buying opportunities that may come along. With the country still in the grip of a deflation mentality that Abenomics is trying desperately to reverse, you won't go wrong if you keep a stash of yen set aside for big ticket purchases such as household appliances and in case you need a deposit for a house.

0 ( +0 / -0 )

Abenomics WAS working until the consumption tax was hiked. "Japan is back" was the mantra of 2013. Higher taxes kill stimulus effects, it's as simple as that.

As for "reforms," any free market moves will make matters worse, by killing off those small and medium manufacturing enterprises in the provinces, as they did in the US and UK in the 1980s.

-2 ( +0 / -2 )

Abenomics WAS working until the consumption tax was hiked. "Japan is back" was the mantra of 2013. Higher taxes kill stimulus effects, it's as simple as that.

Have you read Keynes? If so, then you know that central bank policy can only be effective if there is an underlying foundation of growth. Japan has no such foundation, as evidenced by the decline in the population. And even if there is a foundation of growth, the viability of Keynesian economic principles is still a matter of debate.

1 ( +1 / -0 )

"Japan has no such foundation"

It has the world's leading automotive industry. and still retains some of the most potent high-tech. Its consumers are among the world's most sophisticated, and routinely make purchases of high-end, high-quality goods and services, probably to a greater extent than anywhere else.

"as evidenced by the decline in the population."

Low birthrates are associated with high living standards. Look at Scandinavia. And as Russia's population shrinks, average personal incomes have nearly tripled in recent years. Impoverished countries are nearly always ones with high birthrates.

0 ( +0 / -0 )

The problem is global and I still believe Japan With PM Abe is better. Maybe the writer has a gloomy Friday mode.

0 ( +0 / -0 )

Well, Abenomics may be faltering, but apparently Awanomics is thriving, heck, 3 new massage parlors have recently opened in my neighborhood...

0 ( +0 / -0 )

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