Shinzō Abe became the prime minister of Japan for the second time in December 2012. Weeks after taking office, he introduced his three-arrow-based, jump-start program for the economy.
Stock markets around the world rejoiced along with domestic indices such as Nikkei 225 and the Tokyo Stock Price Index (or TOPIX) in the hope that Japan would make a comeback. So did exchange-traded funds (or ETFs) (EWJ) (DXJ) (EFA) (VEA) (VPL).
By May 2013, the Nikkei 225 index, which was around the 10,000 mark after the 2012 elections, rose to more than 15,000. The yen had a reverse fate. During that time, it weakened from around 82 to one US dollar (UUP) to 103 to a dollar. This was due to the extremely accommodative monetary policies the Bank of Japan was following.
Impact on the economy
As far as monetary policies are concerned, they haven’t seen their desired results so far. However, fiscal policies are yet to deliver. A hike in the consumption tax from 5% to 8% in April this year hit the Japanese economy hard in the second quarter. A rebound was expected in the third quarter, but economic growth continued to slide.
In calling for a snap election, Shinzō Abe deferred the second hike in taxes from 8% to 10% by 18 months, to April 2017. While this deferment may not be construed as policy failure, it certainly hinted that the government will need to do more to help the economy find its legs.
Fiscal policies haven’t delivered, but structural changes and deregulation haven’t even gotten off the ground. Trans-Pacific Partnership (or TPP), whose membership was being seen as a key policy objective, has not worked out.
Even after Abe achieved a majority in both houses of the Japanese Diet, opening up Japan’s protected agriculture and automotive industries was still too much of an uphill political battle.
In the next article in this series, we’ll look at the efforts the Bank of Japan is making to the get the economy going.