The Future Again? The Assessment of Abenomics

Abstract

When Shinzo Abe resigned in disgrace in September 2007, no one expected his second coming. Yet he came back with a strong message for the Japanese economy: a policy package commonly known as “Abenomics.”¹ The first time, it did not stick, and it was largely irrelevant, but this time, it is sticking, and it is having considerable consequences. Admittedly Abenomics is still in its early stages, and its future is still uncertain, but early signs have been promising. Stock prices have soared: for example, the Nikkei index has increased from ¥8,664 in November 14, 2012, to ¥15,071 in April 3, 2014, while the yen has depreciated from ¥81 per dollar to ¥103 during the same period. The effects are felt not only in financial markets but also in other markets. The real gross domestic product (GDP) growth rate has turned positive. The unemployment rate has decreased from 4.1 percent in November 2012 to 3.8 percent in June 2014. Even deflation has been receding. The change in the consumer price index (CPI), the so-called headline CPI, has increased from –0.2 percent in November 2012 to 3.4 percent in July 2014. The change in the CPI less all foods and energy, the so-called core CPI, has increased from –0.5 percent to 2.3 percent for the same period.² But, the consumption tax increase in April 2014 poses a great risk to the course of Abenomics. The growth rate has plunged back to a –6.7 percent annualized rate for April to June, and –1.9 percent annualized rate for July to September.