Abenomics Failures and Successes

Yesterday, Japan released another disappointing GDP number showing that the economy barely grew at all in the quarter ending in June, although the first quarter results were updated to about 2% annualized growth, a pretty robust number for a country that has struggled to grow more than 1% annually for the past two decades. Prime Minister Shinzo Abe has been trying to jumpstart the economy, primarily through government spending. And he recently announced a new stimulus package of about $275 billion, equivalent to almost 5% of GDP. Japan’s debt-to-GDP ratio now stands around 230% but, despite the predictions of debt hawks around the world, there has been no run on the Yen. In fact, one of the reasons for the weak GDP growth in the last quarter was because of the strength of the Yen which suppressed exports by nearly 6% in the quarter. It just shows the power of having your own currency.

Meanwhile, there is one area in which Abenomics must be considered a success and that is employment. The employment-to-population ratio (EPOP) for Japanese ages 16-64 has actually increased by 2.5% since Abe took over in 2012 and now stands at 73%.

With this kind of increase in employment, at some point you have to think that growth will follow. In any case, Abenomics is proving to be a useful example of the struggles to escape a low-growth economy due to an aging population, liquidity traps, and deflation. Time will tell if it succeeds.