Charting Japan's Economic Recovery
(Bloomberg) -- Prime Minister Shinzo Abe won a leadership vote of his ruling party Thursday, bolstered by Japan’s longest stretch of economic growth in a generation. His Abenomics program has coincided with a global upswing that’s helped the country break out of a decades-long deflationary malaise, fueled corporate profits and supported the stock market.
Abe did enough to retain the top job in the Liberal Democratic Party, but he hasn’t delivered on some of his early policy goals, despite a strong position in parliament. Debt keeps rising, demographic problems abound and women are yet to crack open the glass ceiling into management. The charts below show some key areas of success, and where more work is needed.
Massive monetary stimulus, flexible fiscal policy and a favorable global environment helped the economy expand at an average annual pace of 1.3 percent in real terms over the first five years of Abenomics. That’s still short of Abe’s own goal of 2 percent. His 600 trillion yen ($5.4 trillion) target for gross domestic product in 2020 also looks out of reach, particularly with a sales-tax hike looming in 2019.
While Abe doesn’t want to say it too loudly, given sensitivities with the U.S., the weaker yen that’s accompanied the Bank of Japan’s stimulus has been a huge benefit for the nation’s international competitiveness. Exporters have reaped profits and there’s been a record influx of tourists from overseas. The weaker yen has also come at a price, with Governor Haruhiko Kuroda buying so many bonds and other securities that the BOJ’s holdings are now almost as big as the economy itself, creating a whole new set of problems.
The central bank has given up on predicting when Japan will reach 2 percent price growth, and in July took measures to shore up its program for the long haul. In the meantime, the stimulus is squeezing commercial banks, distorting bond and equity markets and adding to unease about Japan’s heavy debt load. A modest improvement in wage growth offers hope that a targeted cycle of higher pay, consumption and prices may gain traction.
Hefty earnings, especially for big exporters, have spurred capital investment by companies betting on a brighter future. And there are signs that enterprises focusing on the domestic economy are also investing more. Stock market gains reflect the renewed optimism in Japanese businesses. That’s also provided a windfall for individuals who invested in Japanese equities, fueling some high-end consumption, along with complaints. A criticism leveled at Abenomics is that it’s helped wealthy people in Japan’s cities get richer while regular wage earners and residents of regional areas continue to struggle.
Economic growth has reduced unemployment to the lowest levels in more than two decades. Yet the increasing number of jobs available for each job seeker owes as much to Japan’s aging and shrinking population as it does to Abe’s drive to re-energize the economy. And the prime minister’s program has done little to slow the demographic slide or address the debt burden that will be carried by future generations.
Gains in the number of women participating in the labor force warrant some celebration, but there’s still more to be done. The percentage of female board members for companies listed on the benchmark Topix index has tripled during Abe’s tenure, but is still only 4.2 percent. A goal of making 30 percent of managers women by 2020 has been scaled back.
The LDP leadership vote took place Thursday afternoon. Abe’s sole opponent, Shigeru Ishiba, had emphasized the need to prioritize social security reform, regional growth and fiscal prudence ahead of the prime minister’s planned efforts to change the constitution.
©2018 Bloomberg L.P.