Ever since Japan’s stock market bubble burst in the early 1990s, the country’s economy has been stuck in a deflationary spiral. Wages and prices kept going down — and so did consumer spending.
After all, would you buy something today if you knew it was going to be cheaper tomorrow?
But when he came to power last December, Japan’s Prime Minister Shinzo Abe said he could fix the problem, after two “lost decades.”
His mix of economic policies was soon dubbed “Abenomics.” The government says they have begun to revive the country, while economists say the results have been mixed.
Kozo Yamamoto, a lawmaker with the ruling Liberal Democratic Party, organized a series of study sessions where “reflationists,” including himself, persuaded Abe to use monetary policy aggressively.
“The most important thing is to change the people’s expectation on the inflation rate,” Yamamoto says. “Many Japanese had deflationary expectations. Then nobody consumes and nobody invests, because in the future, prices will go down.”
Japan has pumped nearly $1.5 trillion into the economy by printing more money and buying back government bonds — an attempt to create inflation, which is what Abe officials say the country needs. And it has increased public spending by $100 billion, which will be used to improve Japan’s infrastructure and for public works projects.
The policy has driven up the stock market, and thanks to a weaker Japanese currency, exports are up as well.
The government says inflation is now at its highest level in nearly 5 years, and the economy grew at an annual rate of about 3 percent between April and June.
But many Tokyoites say Abe’s policies have not yet affected them, and they’re still waiting to see which way the economy goes before they make any big purchases or investments.
“I don’t feel that the economy is really picking up, at least not for me, personally,” says Daisuke Okada, a canned coffee salesman, as he takes his lunch break in Tokyo’s Shinbashi district.
“But I do get the sense that some companies and consumers now have a more positive outlook on the economy, and they’re acting on it more than before,” he adds.
What would affect him, Daisuke says, is if the government raises taxes to offset its massive debt.
Up in Tokyo’s working-class Kameido neighborhood, Abenomics seem to be having even less impact.
“We sell daily necessities here. I think probably we’d be the last people to ever benefit from Abenomics,” says local supermarket owner Tatsuhiro Mizuno.
Mizuno takes great pride in offering his customers the lowest prices he can, considerably lower than in central Tokyo. A hand-lettered sign in his office sums up his philosophy: “Conserve everything.”
Mizuno says he hasn’t seen any rise in people’s wages, or any change in their spending habits. Some imported foods are now more expensive. But he refuses to pass the extra cost on to his customers.
“Our customers are very price conscious,” he says. “Even a few yens’ difference matters to them. I’m sure they’d be uncomfortable paying more. So actually, we cover the price rise for them.”
Some economists note that fuel and food prices are the only ones going up. All other prices are still declining, suggesting that domestic demand is still weak.
Noriko Hama, an economist at Doshisha University in Kyoto, argues that much of Japan’s stimulus money has gone into creating a stock market bubble, much like that of the late 1980s, while ordinary consumer prices continue to fall.
“I would rename it ‘absolutely bad economics,’” she says dryly. “I think it is just a ploy to create a bubble economy, in the hope, I suppose, that people will forget the deflationary reality that is pressuring them.”
Hama says Abe’s policies — which she characterizes as supply-side neo-conservatism — are designed to preserve the collusion between government and “Japan Inc.” that has been a hallmark of the Liberal Democratic Party’s rule for decades.
“It’s very much Rip van Winkle economics,” Hama says, “dreaming about the days of strong exports, supported by a cheap yen; economic growth being sustained by public works spending, government picking winners and losers among industries.”
She also notes that Abe has promised deregulation that will make it easier for companies to fire workers, or turn them into temporary workers, who now account for 38 percent of the labor force. They often do the same work as full-time workers, but without equal pay and benefits.
But Hama says that Abenomics threaten to make a very few people wealthy, while leaving most ordinary Japanese behind, and she says that’s not something worth emulating.