What is Abenomics?

"Abenomics" is a set of economic policies that were implemented in Japan in 2012 under the leadership of Prime Minister Shinzo Abe. The name "Abenomics" is a portmanteau of "Abe" and "economy". The policy aims to revive the Japanese economy and overcome the economic crisis and challenges faced during the "lost decade".

Japan’s economy before Abenomics

Before the implementation of Abenomics, the Japanese economy was once considered to be one of the strongest and most developed economies in the world. Since the end of World War II, the Japanese economy has grown rapidly due to high levels of investment, strong export demand, and technological innovation. This is also referred to as the Japanese economic miracle. In the 1990s, however, the Japanese economy began to encounter several challenges, including declining competitiveness, declining consumer spending, and rising government debt. Governments struggled to adopt effective economic policies to address these challenges, resulting in a prolonged period of low growth and deflation known as the "lost decade". In addition, government debt has also become a major obstacle to a sustained economic recovery.

All the crises erupting at the same time also lead to challenges in the labor market. The economy is characterized by low labor force participation and a high number of part-time and temporary workers, which contributes to income instability and lower consumer spending. Overall, the Japanese economy needs major reforms to address long-standing challenges and revive growth before Abenomics is implemented.

The emergence of Abenomics

The first Abenomics plan was announced in 2012. The three pillars of Abenomics are:

1. Monetary easing - the Bank of Japan (BOJ) increases the money supply and keeps interest rates low;
2. Fiscal stimulus - the government increases public spending to stimulate demand; and
3. Measures to increase the efficiency and competitiveness of the Japanese economy - these include reforms in areas such as the labor market, including increasing labor force participation among women and older workers, and promoting entrepreneurship and innovation.

The implementation of Abenomics has led to improved economic growth in Japan, higher consumer spending, and higher employment and wages. Besides, Abenomics also aims to improve the country's trade balance and competitiveness by boosting exports and foreign investment. This includes efforts to weaken the yen, which helps make Japanese exports more competitive and improves the country's trade balance.

Starting in 2015, Abenomic 2.0’s target to overcome the supply constraint with the latest three pillars are:

1. Robust economy that create hope - achieve nominal GDP of JPY 600 trillion;
2. Child care support that fosters dreams - birth rate of 1.8 persons; and
3. Social security with peace of mind - zero case of leaving a job to take care of a family member.

The main purpose of Abenomics 2.0 is to address Japan's social problems related to an aging population. In order to increase the labor force, Japan aims to create a social activity environment that is inclusive for men, women, and children. This can be achieved by increasing the employment rate to augment labor supply and, in combination with the three arrows strategy, stimulate investment demand to improve the balance between supply and demand.

Did Abenomics successfully solve Japan’s economic problems?

The success of Abenomics is a subject of debate among economists and experts. On one hand, the policies implemented under Abenomics have a positive impact on the Japanese economy, with improved economic growth, increased employment, and rising consumer confidence. The country has also seen a significant improvement in its trade balance and competitiveness. On the other hand, some experts argue that the success of Abenomics has been limited and that it has failed to address some of the structural issues in the Japanese economy, such as the aging population and declining productivity.

Moreover, despite the progress made in boosting growth and employment, the country still faces challenges such as the high level of public debt, the persistence of deflation, and the lack of meaningful progress on structural reforms. Nevertheless, the policies implemented under Abenomics have been seen as a step in the right direction for the Japanese economy, and many see it as a model for other countries facing similar economic challenges.

In conclusion, Abenomics was unable to fully solve most of the issues faced by Japan. Due to the limitation of Abenomics, Japan is currently still encountering a range of economic, social, and demographic challenges that have been refraining its growth and competitiveness throughout the years. The issues include:

1. Aging population: Japan has one of the oldest populations in the world, and this is affecting its workforce and economic growth. The decline in the number of working-age individuals is leading to a decline in productivity, and the aging population is also putting pressure on the country's social security and healthcare systems.
2. Public debt: Japan has the highest public debt of any developed nation in the world and this is affecting the government's ability to implement economic and social policies. The high level of public debt is also reducing the country's creditworthiness and making it vulnerable to financial shocks.
3. Deflation: Japan has struggled with deflation, or falling prices, for several decades, and this has affected consumer confidence and spending. Deflation can lead to lower economic growth, higher unemployment, and increased public debt.
4. Labor market challenges: Japan's labor market is facing a range of challenges, including low level of labor force participation, particularly among women and elderly workers, and a shortage of workers in certain industries.

These issues are complex and interconnected, and overcoming them will require a multi-faceted approach that addresses both the short-term and long-term challenges faced by the country.