What is Abenomics and what are the major financial reforms undertaken by the Japanese Government?

Abenomics refers to the collective set of reforms undertaken by the Japanese government in 2012 when Shinzo Abe became the prime minister for the second time. The aim was to bring the Japanese economy out of the stagnation that started in the 1980s.

Abenomics contained stimulus and various measures to bring a change to the gloomy economy out of deflation. The reforms were put in place to make the economy competitive and end the shortage of demand that lasted for at least two decades. Achieving inflation of 2% was also a major aim of Abenomics. Additionally, Abenomics sought to increase employment and expand the economy.

Major Considerations

Abenomics dealt with three major points known as "arrows to" change the condition of the economy.

  • The first arrow was to print an extra 60 to 70 million Yens to make investors invest in the Japanese economy and increase the inflation a bit.

  • The second arrow was aimed to increase the demand and the budget surplus as a whole.

  • The third arrow consisted of a unified approach of government and private firms to increase employment, generate demand, and make the healthcare and agriculture sectors more resilient.

The most important and promising effort, however, was the Trans-Pacific Partnership (TPP) that gave Japan the advantage of trading easily and compete in the market more strongly.

Abenomics also tried to expand the economy by money supply. This brought the required rate of inflation but the country more or less failed to reach the rate of deflation it needed to completely come out of the cloud of stagnation.

Why Abenomics?

Abenomics was sought to end the stagnation of continued bubble bursts. For example, the real estate bubble burst in the 1980s and the asset price bubble burst in 1990. The economy failed to get momentum after 1980 which Abe wanted to end. The economy remained stagnant till 2012 when Abe became the prime minister for the second term. Soon after resorting to office, he took up the task of bringing conformity to the Japanese economy. The 1990s to 2000s are known as the lost decade in Japan as no measures were taken to bolster growth. Abenomics wanted to end this gloom.

Was Abenomics successful?

Like all other similar approaches, Abenomics was partly successful. The inflation and employment measures were successful. However, the Japanese economy was subject to shocks due to global forces and it failed to address a solution for the rapidly aging population.

Points to Note

  • Abenomics sought to end the gloomy period of the economy by taking various measures during the second term of Prime Minister Shinzo Abe.

  • There were three major considerations known as "Three Arrows in Abenomics".

  • Abenomics dealt with a lot of issues and ended many problems. However, it still faced global economic jolts and aging population, problems it cannot contain easily.