5:05pm

Thu August 1, 2013
Parallels

'Abenomics' Serving Up The Same Old Medicine In Japan?

Originally published on Thu August 1, 2013 5:48 pm

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 five 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 yen's 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 neoconservatism — 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.

Some prominent foreign economists have hailed Abenomics as a model for developed economies to follow.

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.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

MELISSA BLOCK, HOST:

The government of Japan claims the country's economy is finally recovering from two decades of sliding prices and wages. And it says credit for the turnaround should go to Prime Minister Shinzo Abe, whose policies have been dubbed Abenomics. But some economists don't see much difference between Abenomics and the policies that got Japan in trouble in the first place.

NPR's Anthony Kuhn has the story from Tokyo.

ANTHONY KUHN, BYLINE: Why would you buy something today if you know it's going to be cheaper tomorrow? That's the mentality that has dominated Japanese consumers since their country's stock market bubble burst in the early 1990s. Since then, the country has been stuck in a deflationary economy, which means that wages and prices keep going down, taking consumer spending along with them.

Kozo Yamamoto is a lawmaker with the ruling Liberal Democratic Party. Here's what he says he advised Prime Minister Shinzo Abe to do.

KOZO YAMAMOTO: The most important thing is to change the people's expectation on inflation rate. Many Japanese had deflationary expectation. Then nobody consumes, nobody invest because in the future the prices will go down.

KUHN: Japan has pumped nearly one and a half trillion dollars into the economy, in an attempt to create inflation. And it has increased public spending by $100 billion. The stock market is up. And, thanks to a weaker Japanese currency, exports are up. The government says inflation is now at its highest level in nearly five years and the economy grew at an annual rate of around three percent between April and June.

(SOUNDBITE OF CROWD)

KUHN: To see what folks think about all this, I'm heading to Tokyo's Shinbashi district, where a lot of office workers go to take breaks and meet friends. I meet a guy named Daisuke Okada, who is a salesman of that uniquely Japanese drink, canned coffee in vending machines.

So, how do you feel in general about Abenomics, about the policies?

DAISUKE OKADA: (Through Translator) I don't feel that the economy is really picking up, at least not for me, personally. 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.

KUHN: But Abenomics seems to be having even less impact in Tokyo's working class Kameido neighborhood.

(SOUNDBITE OF MUSIC)

(SOUNDBITE OF BROADCAST)

UNIDENTIFIED MAN: (Foreign language spoken)

KUHN: Tatsuhiro Mizuno runs a supermarket here. He takes great pride in offering his customers the lowest prices he can. 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

TATSUHIRO MIZUNO: (Through Translator) We sell daily necessities here. I think probably we'd be the last people to ever benefit from Abenomics.

KUHN: Mizuno says that some imported foods are now more expensive, but he refuses to pass the extra cost on to his customers.

MIZUNO: (Through Translator) Our customers are very price conscious. Even a few yen's difference matters to them. I'm sure they'd be uncomfortable paying more. So, actually, we cover the price rise for them.

KUHN: 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, of Doshisha University in Kyoto, argues that much of Japan's stimulus money has gone into creating a stock market bubble; much like the one that sank the country into its so-called lost decades. She warns that Abenomics' trickle down theories just won't work.

NORIKO HAMA: I would rename it: Absolutely Bad Economics. I think it is just a ploy to create a bubble economy, in the hope, I suppose, that people will forget about the deflationary reality that is pressuring them.

KUHN: She sees Abe's policies as basically supply-side neo-conservatism. She says they're designed to preserve the decades-old collusion between government and Japan Inc.

HAMA: It's very much Rip van Winkle economics, if you like - dreaming about the days of strong exports, supported by a cheap yen; economic growth being sustained by public works spending.

KUHN: Some prominent foreign economists have hailed Abenomics as a model for developed economies to follow. 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.

Anthony Kuhn, NPR News, Tokyo. Transcript provided by NPR, Copyright NPR.