The Impact of Abenomics on Japan’s Economy

How Has Abenomics Impacted the Numbers?

Just over half a year has passed since the second administration of Prime Minister Abe Shinzō took office on December 26, 2012. We are now rapidly approaching the House of Councillors election on July 21, where the government’s record to date will be judged by the public. The principal area of contention in the contest will be the administration’s new economic policies, dubbed “Abenomics.” The combination of aggressive monetary easing, flexibly applied fiscal stimulus, and a growth strategy aimed at spurring private investment (the Japan Revitalization Strategy) is designed to create a better economic environment in order to appeal to voters. 

Looking at the movement of economic indices over the past year, the change of government in December 2012 and the dramatic monetary easing that followed have coincided with a strong recovery in the Nikkei Stock Average and a sharp correction of the yen in the foreign exchange markets. The number of unemployed has decreased and the ratio of active job openings to applicants has improved, too. The Tankan report from the Bank of Japan on short-term business sentiment shows that the diffusion index, calculated by subtracting “unfavorable” corporate outlooks from “favorable” opinions, has also markedly improved, especially among larger firms. 

The Tankan report did not, however, show much of a recovery in business sentiment among small and medium-sized enterprises. While the cheaper yen has benefited exporters, the higher price of imports and raw materials has had a negative impact on households and smaller firms. It appears that it will still be some time until Japan can break free of deflation and realize a full economic recovery. In the meantime, though, much focus will be placed on how voters evaluate the performance of the Abe administration to date.