TOKYO -- Prime Minister Shinzo Abe, after confirming he will run in the upcoming Liberal Democratic Party (LDP) presidential election, underscored the positive aspects of his "Abenomics" economic policy mix that his administration has promoted during a party gathering in the city of Kagoshima in southern Japan on Aug. 26.
"The country's economy has achieved 11.8 percent growth over the past 5 1/2 years, with figures for last year posting an all-time high. The number of regular employees has also increased by 780,000," Abe told the audience.
Amid criticism that the benefits of Abenomics have not reached local regions since the policy was implemented after Abe's return to power in December 2012, the prime minister is scrambling to tour regional areas ahead of the party leadership contest scheduled for Sept. 20.
After the government changed hands from one led by the then Democratic Party of Japan (DPJ) to the LDP-led coalition, Prime Minister Abe has prioritized economic policies while playing down conservative platforms such as his cherished goal of constitutional amendment. The ultra-easy monetary policy and fiscal stimulus measures, both of which are pillars of Abenomics, were received favorably by the financial market, pushing the yen to over 120 to the dollar in 2015 from around 80 yen before the inauguration of his current administration. Riding the wave of the robust global economy, major domestic companies have substantially improved their business earnings, and the Nikkei stock index has more than doubled since Abe's return to the premiership. The job market for fresh graduates from college has largely improved, underpinning the high approval ratings for the Abe Cabinet among younger generations.
However, the path toward the government's goal of balancing between economic recovery and the restoration of fiscal health is nowhere in sight. Government debt remained at 883 trillion yen as of the end of fiscal 2018, a jump of nearly 200 trillion yen from the end of fiscal 2012. The biggest factor behind such snowballing debts is the government's two-time postponement of the consumption tax hike from the current 8 percent to 10 percent, which had initially been scheduled for October 2015. Prime Minister Abe was hesitant to raise the sales tax further during his tenure as the previous tax hike from 5 percent to 8 percent in April 2014 cooled down the country's economy.
The policy to raise the sales tax rate to 10 percent was originally agreed upon in June 2012 by the then ruling DPJ and the then opposition LDP and Komeito. The parties intended to present their shared view that the sales tax hike was necessary to maintain the social security system amid swelling medical and pension expenditure due to the aging of society. This was also aimed at boosting the public's understanding regarding the controversial tax increase. At that time, the three parties agreed not to make the tax hike a tool for political maneuvering. However, "the Abe administration has invalidated such a grave political decision so easily," fumes a former Cabinet member of the LDP.
In the October 2017 House of Representatives election, Prime Minister Abe announced a new policy of allocating about half of the extra revenue to be generated from the consumption tax hike, or slightly over 5 trillion yen, to measures including making education free of charge. Due to the policy change, however, the government's goal of achieving a primary balance surplus is being pushed back from fiscal 2020 to 2025. Behind the abrupt policy adjustment apparently lies Abe's wariness of the possibility that the sales tax increase currently scheduled for October 2019 may adversely affect his administration.
The prospects for achieving the goal of bailing Japan out of prolonged deflation -- another campaign promise of the LDP -- is also up in the air. Shortly after Abe's return to power in 2012, his administration released a joint statement with the Bank of Japan (BOJ), setting a 2 percent inflation target. BOJ Gov. Haruhiko Kuroda, who assumed his post in March 2013, created a plan to achieve the inflation goal in two years through unprecedented quantitative and qualitative monetary easing.
While the monetary easing policy helped companies achieve a V-shaped recovery amid the falling yen and rising share prices, a positive economic cycle of pay raises spurring robust consumption and leading to price upswings has yet to set in. There is no telling when the country can achieve the inflation target, or when the exit strategy from the monetary easing will be set forth.
Former LDP Secretary-General Shigeru Ishiba, who is running in the party presidential election in a possible two-way race, has been stepping up his criticism of the Abe administration, saying, "The effect of the monetary easing policy wouldn't last forever. I don't think it is right that only figures favorable to the administration are emphasized."
(Japanese original by Wataru Okubo, Business News Department)
This is Part 1 of a series.