Post-Abe Japanese Economy - photo 1
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Post-Abe Japanese Economy | World

Observers are questioning whether the economic policy of the Shinzo Abe administration (also known as Abenomics) will change drastically under the new Prime Minister Yoshihide Suga. The answer to this question has much to do with geopolitical developments such as the Covid-19 pandemic or the US-China confrontation.

Safe or boldly change?

Many outside observers believe that Mr. Suga will follow the Abenomics policy and this is a safe option. With nearly eight years as Mr Abe’s chief of staff, this is probably the best move for Mr. Suga.

According to such developments, the policy of loosening monetary policy since 2013 by the Governor of the Central Bank (BOJ) Haruhiko Kuroda, who was appointed by Mr. Abe, will be continued. Likewise, Mr. Suga will avoid a drastic and urgent fiscal tightening, even though the Abe government’s pandemic response has increased the net debt level of Japan, which is among the highest among developed countries (about 150% of GDP).

But if Japan wants to maintain a global position, Mr. Suga must differentiate himself from his predecessor and carry out many structural reforms. Management reforms and increasing labor market productivity are almost certainly the only way to boost Japan’s economic growth.

Although Mr Abe’s policies have helped end prolonged deflation, the overall performance of Abenomics is not so impressive. From 2013 to 2019, annual GDP growth averaged just 1% and only twice surpassed 2% in his eight years as Prime Minister Abe.

Moreover, BOJ data shows that growth under Abenomics policy is mostly the result of increased capital and labor input, rather than productivity efficiency. Contrary to the popular view that Japan’s economy faces strong effects due to an aging population and a declining workforce, the number of people with jobs continued to increase during Abe’s years as more women join the workforce.

Slowing productivity growth suggests that the Abe administration’s structural reforms (often referred to as Abenomics’ “third arrow”) have failed to meet expectations. The recent attempt to rescue the Trans-Pacific Trade Agreement and a free trade agreement with the EU, coupled with advances in corporate governance, are substantial and commendable achievements. However, the resonance effect of Abenomics is not great.
Japan's economy in the post-Abe period - photo 2

Setagaya shopping district in Tokyo, Japan

This may be because opposition parties lack countermeasures against Abenomics to push Mr Abe to be more drastic. Or maybe because he devoted himself to a constitutional amendment, the goal has yet to be achieved because it has not attracted the support of the majority of voters.

Two obstacles

To promote sweeping structural reforms requires Mr. Suga to overcome the convictions and expectations, largely from within the ruling Liberal Democratic Party (LDP), and skillfully mobilize the opinion of the people. people. Some of Mr. Suga’s statements during the recent election campaign show that he may be a more “dare to think dare” prime minister than many expected.

For example, Mr. Suga has come out with the idea of ​​allowing new competitors to enter heavily regulated industries such as mobile telecommunications and agriculture. He also announced the government’s intention to set up a new agency dedicated to reforming the digital infrastructure of the government.

Other indications were revealed when he was the cabinet chief. That’s when he pushed for a change in policies that so far were deemed untouchable, loosen visa rules open to foreign visitors, or amend related policies to respond to natural disasters.

However, the future ahead is still unpredictable and Mr. Suga will face 2 immediate obstacles. First, he must demonstrate his own distinct leadership style. Unlike his predecessors from powerful political families, Mr. Suga has a middle-class background. Although Mr. Suga has proven himself as a capable behind-the-scenes manager, his new role also requires him to be the one to guide and inspire the country. The first test will be to steer the government to respond to the pandemic after the measures of the predecessor administration.

Mr. Suga’s second stumbling block is to consolidate power in the LDP against potential internal fights that likely emerge after he establishes a cabinet. Mr. Suga’s best strategy may be to call for early elections. A general election victory would give him the authority needed to outline a more assertive economic policy path.

(Bao Vinh translate)

© Project Syndicate


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