The Global Economy in Turbulent Times

CHAPTER 61 Abenomics Hitting Speed Bumps¹

Five woes led to the rise of Abenomics: (1) severe side effects of the 1997 and 2008 global financial crises, which resulted in the United States, eurozone, and Japan each struggling with its own version of recession, and then, a jobless slow recovery; (2) the crises were multifaceted, involving property bubbles, easy money, unprecedented shifts in demography, and widespread impact of advances in ICT (information and communication technology) that revolutionized the workplace and marketplace; (3) series of natural disasters and incidents; (4) overvaluation of the yen; and (5) “reactive” expansionary macroeconomic policies reflecting mostly “denial” and avoidance of “reform” in advanced economies.

Once elected prime minster in December 2012, Mr. Abe launched his own eponymous “three arrows” revival program comprising (1) “bold,” easy monetary policies; (2) “flexible,” expansionary fiscal policies; and (3) investment-enhancing structural reforms. Chapter 60, “Abenomics: Japan Comes Alive Again,” provides fuller details.

In six months, the Nikkei Stock index rose 57 percent, while the yen fell some 20 percent against the US dollar. After a correction last May, the index continued to climb (now up 16 percent from a year ago). What’s clear is that Abenomics had spectacular initial success in changing the nation’s mood and business sentiment. Since April 2014, however, its magic has begun to fade because of re-recognition of uncertainty over ...