now loading...
Wealth Asia Connect Middle East Treasury & Capital Markets Europe ESG Forum TechTalk
Treasury & Capital Markets / Viewpoint
Abenomics’ lasting, positive legacy in Japan
Unfavourable views of former Prime Minister Abe Shinzō are on the rise in Japan. But, rather than dwelling on his critics’ errors, it is more useful to draw attention to two important aspects of Abe’s policy agenda that will have a lasting and positive impact on the country
Koichi Hamada 8 May 2024

After the 1985 Plaza Accord pushed the yen’s exchange rate sharply upward, Japan’s economy suffered a severe slowdown that proved mightily difficult to reverse. In fact, the only Japanese prime minister to oversee a period of consistent growth and high employment in the past three decades was Abe Shinzō, during his second term, which began in 2012.

Abe’s economic programme (which I helped the prime minister develop), was quickly dubbed Abenomics. Assisted by the Bank of Japan (BoJ)’s monetary policy under then-governor Haruhiko Kuroda, the policy saw employment rise more than under any other Japanese government in the 21st century, creating nearly five million jobs between 2013 and 2019.

At the same time, about three million new female workers joined the labour force during this period. To provide his economic policies with a secure base, Abe sought to strengthen national security by promoting the idea of a “free and open Indo-Pacific”.

Those critical economic and diplomatic achievements marked the tenure of Japan’s longest-serving prime minister, who resigned because of ill health in 2020 and was assassinated while campaigning for his Liberal Democratic Party (LDP) in 2022. Younger Japanese who benefited from job creation under Abe’s watch mourned his untimely death on the streets of Tokyo. Last year, Abe’s memoir, based on a collection of interviews about his storied career, was an instant bestseller. I had to join a waiting list to buy it.

But, almost two years after his assassination, there has been a dramatic shift in public attitudes toward Abe: many now view him unfavourably. Media have uncovered evidence of controversial ties between LDP politicians and the Unification Church (Abe’s assassin was motivated by revenge against the religious group, to which Abe’s grandfather Nobusuke Kishi was attached). Moreover, some leaders from Abe’s faction in the LDP have reportedly failed to declare political donations and are now embroiled in a major scandal.

Journalists scoff at my personal reflections on Abe and rarely want an objective account of his economic successes. Instead, I receive requests to write about the “failure” or the “dark side” of Abenomics. As a former close adviser to Abe, I am tempted to defend him against such criticism. But after picking up his memoir again, and seeing his forward-looking face, I was reminded of his genuine devotion to the people of Japan and his desire to implement policies that would guide the nation well into the future. Therefore, it is more useful to draw attention to two important features of Abe’s policy agenda that extend to the future than it is to dwell on his critics.

First, Abenomics was particularly effective in the first half of Abe’s second term. Kuroda’s “bazooka” programme of vast monetary easing weakened the yen. But when the world began to face secular stagnation around 2016, the BoJ’s easy-money policy became relatively ineffective. There was a need to abandon the consumption-tax hike from 8% to 10% in 2019 and deploy more government spending. Not long after, Abe began to realize that the Ministry of Finance’s attitude, obsessed by the balanced budget, was wrong. He compared Modern Monetary Theory (MMT) to fugu, the fatally poisonous pufferfish from his hometown: one can safely enjoy this delicacy only if it is prepared by a skilled chef.

I was also slow to appreciate the delicacy of MMT, which has at its heart Abba Lerner’s functional finance theory from 1943. As long as government debt is held by its nationals – as it is in Japan – the budget balance is essentially a matter of wealth distribution between the government and its citizens, and thus of secondary importance to the macroeconomy. Moreover, a sovereign country can monetize government debt. In the current environment, Lerner’s insight is significantly more important than MMT’s “poison”, the possibility of soaring inflation.

Second, Abenomics helped Japan emerge from a two-decade-long recession by expanding the workforce, with a notable jump in the number of female workers. Most of the increase came from non-regular and part-time employment. Given that a higher proportion of women work in these types of jobs, Abe’s policies seem to have helped improve gender equality.

But female workers tend to have lower wages and less favourable conditions. In fact, the tax code still helps to sustain wage discrepancies. For example, if the annual income of the lower earner in a married couple is below approximately 1.03 million yen (US$6,700), that income is not taxed. This weakens married women’s incentive to work outside of the home, and, more importantly, it strengthens employers’ incentive not to pay higher wages to married women, who tend to earn less than their husbands.

I suspect that this barrier to women’s employment gains may reflect the persistence of norms dictating that women should stay at home and raise children – male chauvinist beliefs that pervade LDP’s nationalist factions. So, while Abenomics significantly boosted women’s workforce participation, it was unable to narrow the gender wage gap. As a result, Japan continues to have a poor record on gender equality, especially in terms of female leadership.

Despite the emerging revisionist view of Abenomics – and of Abe’s policies and premiership more generally – that is taking hold in Japan, we must remember the important reforms that were implemented over the course of Abe’s tenure. These policy decisions are certain to have a lasting and positive impact on Japan.

Koichi Hamada is a professor emeritus at Yale University and was a special adviser to former Japanese Prime Minister Abe Shinzō.

Copyright: Project Syndicate

Conversation
Freddy Wong
Freddy Wong
head of Asia Pacific fixed income
Invesco
- WILL JOIN THE EVENT -
19th Asia Bond Markets Summit - China Edition
Chinas next act retrofitting for tomorrow
Learn More
Conversation
Kiran Nandra
Kiran Nandra
head of equities
Jupiter Asset Management
- JOINED THE EVENT -
In-person roundtable
Securing the future
View Highlights