The government of Prime Minister Shinzo Abe is set to continue its flagship economic policy called "Abenomics" following the landslide victory of his ruling coalition in the Oct. 22 House of Representatives election.
While the country's economy is on a recovery track, many critics say the effect of Abenomics has not sunk in well enough, and it remains to be seen how far the Abe government can manage to achieve pay raises and other goals. Another possible focal point will be whether the administration can go ahead with the consumption tax hike from the current 8 percent to 10 percent in October 2019 as scheduled, after Prime Minister Abe's pledge to divert part of the extra tax revenue to be generated through the tax hike to make education free of charge.
Following his return to power in December 2012, Abe set out three policy arrows as the centerpiece of his Abenomics policy mix -- a bold monetary easing policy, flexible fiscal measures and a growth strategy to promote private investment. Under the first arrow, the Bank of Japan's massive monetary easing policy has propelled the weakening of the yen, contributing to the improvement of corporate performances especially among export-oriented companies. As for the second arrow, the government's large-scale economic stimulus and other measures to prop up the economy led the country's economic expansion to enter its 58th month in September amid global economic recovery, apparently surpassing the so-called "Izanagi boom" -- the previously second-longest economic boom in postwar Japan.
The ratio of job offers to job seekers also topped that during the heyday of Japan's "bubble" economy, showing an improvement in the employment situation. The Nikkei stock average also rose for the 14th straight business day on Oct. 20 -- the first such feat in about 56 years and 9 months.
However, critics say the effects of the economic recovery haven't been felt widely by members of the public, as opposition parties pointed out during their campaigns for the general election. This is because wage increases have been sluggish despite improvement in corporate performances and the employment situation. Consumer spending remains weak due to anxiety about the future, stalling the goal of a positive economic cycle in which improvement in major corporate earnings brings benefits to smaller firms and individuals. The inflation rate still hovers around the range of 0 percent, and efforts to bail Japan out of prolonged deflation are halfway complete.
The Abe government will need to squarely tackle its growth strategy to bolster the real economy while easing public anxiety about the future through such efforts as the expansion of social security measures and restoration of the country's fiscal health.
In his party's election pledge, Prime Minister Abe vowed to divert a portion of the extra tax revenue from the consumption tax hike scheduled for October 2019 to make preschool education and day care services free of charge, though that amount was originally planned to be used for national debt repayment. While the change of policy will make it difficult for the country to meet the goal of achieving a primary balance surplus by fiscal 2020, Abe told a TV program on the night of Oct. 22, "I would like to promote restoration of fiscal health while pressing forward with economic growth and making steady investments."
There is speculation, however, that Prime Minister Abe may postpone the sales tax hike once more as he has done so twice already. Following his announcement in September that he would dissolve the lower house, he stated, "We will have to judge (whether to postpone the tax raise) if we face any major impacts on par with those of (the global financial crisis triggered by) the collapse of Lehman Brothers and economic austerity."
"I'm afraid the prime minister may postpone the tax increase once again," said a senior official with an economy-related government agency.