What is Abenomics?

These three components in Abenomics succeeded in saving Japan. What is Abenomics and has this method achieved success, in full in this article.

What is Abenomics?

Abenomics is a series of economic policies implemented by Japan under the leadership of Prime Minister Shinzo Abe. This policy was successful in helping the country from deflationary lethargy.

In an effort to get Japan out of deflation, economic policies integrated with structural changes were adopted.

Many consider this policy to be an aggressive step that affects the country's monetary and fiscal status. Abenomics, which was implemented in 2012, aims to achieve an inflation target of 2% in order to eliminate deflation and the stagnation of the Japanese economy since the 1990s.

The goal of abenomics is to increase domestic demand and expand GDP.

The State of Japan Before Abenomics

In the 1990s there was a large asset bubble that burst at the start of the era. However, Japan managed to recover in 1996 with Gross Domestic Product (GDP) growth of 3%.

In mid-1997 the Japanese government increased consumption tax from 3% to 5% in order to increase sustainability in 1998. Unfortunately, the financial crisis in East and Southeast Asia also had a major impact.

Nominal GDP growth remained negative for most of the next five years after the tax increase, affecting average annual wages. In 2012, steps were taken to increase the consumption tax to 8% in 2014 and 10% in 2015, with the aim of balancing the national budget and reducing excessive spending.

Is Abenomics Successful?

Abenomics, with its three components has the aim of reducing interest rates through monetary policy. This significantly depreciates the Japanese yen, potentially providing economic benefits by supporting exports. 

Even though the inflation rate was below the target of 2% as of December 2017, there were positive results. Japan's economic expansion increased demand for high-tech goods, encouraging the adoption of innovative technologies. This helps address labor shortages, increases productivity, and sees an increase in tourism, which contributes to economic resilience.

Three Components of Abenomics

Returning to government in 2012 after a previous term from 2006 to 2007, Shinzo Abe brought with him economic measures in response to deflation in Japan. To revitalize Japan's stagnant economy, he implemented Abenomics. 

Monetary policy, fiscal policy, and structural changes or growth plans are the three main components of Abenomics. Monetary policy focuses on injecting new money in the range of 60 to 70 trillion yen, and the second component is increasing government spending, which will provide fiscal stimulus. 

The third component of Abenomics requires significant transformation in Japanese industry and companies. These three components aim simultaneously to stimulate economic growth and overcome the challenge of deflation .

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