The Abenomics scores a new milestone?

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See the success driving the world’s third largest economy

Japan’s GDP grew 4% on the second trimester, 1.5% more than expected. Mainly thanks to internal consumption and government spending. Regardless, it’s been 11 years since the Asian nation didn’t experimented this type of development.

The nation’s success is important to the world because it’s a lesson on how to reactivate a deflating economy. Japan’s Prime Minister, Shinzo Abe is the mastermind behind this achievement.

Abenomics consist of three elements that were highly visible this year: increased economic support from the government, monetary stimulus, and a deep reform inside the institutions.

Regarding the economic support for the economy, Shinzo Abe dedicated $104,000 million dollars for infrastructure, a substantial part of it is directed to the Olympic Games that will be held in 2020. The effect of an increased government spending implies that people will be able to able to land a job; the salary is going to pay for goods and services across the economy, meaning that every dollar the government spends will have an even greater aggregate effect in the society.

The second measure is a monetary stimulus. Given the fact that the Japanese economy is creating jobs and more people can access greater portions of the market, more money for the broad economy is desirable. Accordingly, Shinzo Abe told its central bank to create a Quantitative Easing (QE) program to boost the economy. By printing large amounts of money, japans inflation is expected to rise to 2%, so far it’s at 0.4%.

A cheaper Yen implies now imports are costlier and exports cheaper, creating an incentive for foreign trade. Since inflation remains low, exports remain low.

The third key for Abenomics is to align the political and economic systems. In order to do this, the island’s Prime Minister has urged for higher wages for workers (backed by the Central Bank), decreased barriers for both nationals and foreigners to access jobs from a transactional standpoint, and increased international lobbying to call for more international investment.

Now Japan’s GDP relies 60% in consumption, in part due to the Abenomics.

Japan’s perspective for the future implies the nation will have to further open its borders to foreigners; the island’s demographics have two main important elements for economic analysis: first, Japan’s population is ageing quickly. In 1989 11.6% of the population was considered senior citizens. 20 years later, the number doubled to 23.2%.

Japan’s ageing problem is crucial as the nation has the longest life expectancy in the world, meaning the government would have to continue to pay for an increasing number of retirements. This payment puts pressure on younger generations which must deal with the territory’s debt: 240% of its GDP due to the past 20 years of economic stagnation, the largest national debt in the world.

Latin American Post | David Eduardo Rodríguez Acevedo

Copy edited by Susana Cicchetto