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What is Abenomics ?
Abenomics is the economic policy proposed by Japanese Prime Minister Shinzo Abe. The main goals of Abenomics are to end deflation and increase economic growth in Japan. One of the key components of Abenomics is an aggressive monetary policy, which has led to some criticism from economists.
Abenomics is an economic policy
The three pillars of Abenomics are −
Fiscal stimulus − This involves the government increasing spending in order to jump start the economy.
Monetary easing − The central bank (the Bank of Japan) implements policies to increase the money supply and lower interest rates.
Structural reforms − These are reforms aimed at increasing productivity and competitiveness.
In Depth of Abenomics's policy
Let's take a closer look at Abenomic's policies in this section.
The monetary stimulus component of Abenomics is designed to increase inflationary pressure in the economy and break the deflationary mindset that has gripped Japan for years. The Bank of Japan (BOJ) has implemented a number of unconventional measures in pursuit of this goal, including quantitative easing and negative interest rates.
The fiscal stimulus component of Abenomics is designed to increase government spending and jumpstart economic growth. This has been a controversial part of the policy, as it has led to an increase in Japan's already large national debt.
The structural reforms component of Abenomics is aimed at increasing competition and productivity in the Japanese economy. This includes reforms to labor markets, product markets, and the financial sector.
So far, the results of Abenomics have been mixed. While inflation has risen and economic growth has picked up, many of the promised reforms have yet to be implemented.
How has Abenomics effected Japan?
Under Abenomics, Japan has seen an increase in inflation and wages, as well as a boost to its economy. The monetary policy has helped to spur on economic growth and reduce the country's debt burden. While there have been some negative effects, such as an increase in the cost of living, on balance Abenomics has been positive for Japan.
Abenomics began in 2012, but its objectives have remained elusive. Many critics assert that despite the massive national debt of one quadrillion yen, the economic changes have not increased inflation. Japan's current inflation rate is 1%, which is below the 2% goal. In 2017, the country's GDP increased for the first time in 30 years by 0.5%.
Critics of Abenomics
There is no shortage of critics when it comes to Abenomics and its monetary policy. Some argue that the policy is nothing more than a short−term fix that will only serve to further indebted the country in the long run. Others believe that the policy is too reliant on inflation to be sustainable, and that it will eventually lead to higher prices and erode purchasing power. There are also those who argue that the policy does nothing to address the structural problems facing the Japanese economy, and that it is simply a way for the government to kick the can down the road.
Conclusion
In terms of policy mix, Abenomics is conventional. With this plan, Japan hopes to end deflation and decline in its real growth potential. In the long run, these changes will benefit the country, the people, and the business sector.
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