The legacy of Shinzo Abe’s attempts to reform the economy is the famed eight quarters of uninterrupted growth that had been achieved – the best result over the last thirty years. The key elements of his reform which became known as ‘arrows’, were loosening of monetary policy, fiscal stimulus and economic reforms. Be that as it may, now in 2020 inflation is still low and yet the government is still running a deficit.
After he took office as prime minister in 2012, negative interest rates were imposed which made it easier for consumers to purchase. Years of deflation had often seen the public put off buying decisions, in order to wait for prices to come down, and until his ‘monetary injection’ paid off.
The fiscal reforms led to big infrastructural spending, such as on roads and railways which included the soon-to-be-completed USD 64 bn Chuo Shinkansen maglev link between Tokyo and Nagoya – which can reach speeds of up to 600 km/h. Some USD 61 bn was to be invested for attracting more tourists in beefing up access to ports for the cruise ships.
Writing in the Guardian back in 2014, in trying to define Abe’s effect, Richard Harries of the Reform think tank wrote that as with early Thatcherism, his three-arrowed reforms on the Japanese economy were actually more about faith in change being able to happen. Paraphrasing St Paul of all people, he said, “Abenomics is about showing faith in the Japanese people that the country can shake off its torpor and return once again to the forefront of the world economy.” Abe got Japan its Mojo back.
Final Pillar of structural reform that proved most difficult
But the last pillar of the programme was the most difficult to bring into play. While the steady employment of Japanese workers became eroded, reforms of corporate structures weren’t deep enough. Large companies in Japan found it difficult to adapt. Many had existed in that same torpor, others had openly resisted change. Taking the case of Toshiba as an example, the massive tech conglomerate needed to be split up into more manageable chunks so that it could survive. It cannot seem to get approval from major shareholders, many of whom being state or regional governments.
The other example is Nissan, part of an alliance with Renault and Mitsubishi. So strong was the desire to keep the firm a separate entity, that according to a Bloomberg investigation the two Japanese partners plotted to have the Brazilian-born Lebanese Chairman Carlos Ghosn arrested – rather than keep to his cost-cutting merger tactics. He fled arrest.
Back to the 1980’s
Getting back to its position of supremacy that Japan found itself in in the 1980’s – was maybe too much to ask for. Cheap Japanese consumer goods were to be laughed at in the early post-war years, but it was with the launch of the Sony Trinitron TV and its cleaner image in 1966, that world export markets looked upon in amazement as Japanese goods took the market share. US and European competitors found it hard to compete with such reliable, and more advanced products in nature which sold so cheaply, this being embodied in particular by the Sony Walkman portable cassette player launched in 1979.
When Sci-fi writer Michael Crichton wrote Rising Sun in 1982, the image of Japan completely subjugating the US economy became the stuff of nightmares, charting as it did the rise of electronics firms, car manufacturers and other endeavours supported by easy loans from state development banks.
Then, the bubble burst
But therein lay the problem. A decade of easy money led to a bubble so big that it had to burst. Real estate prices in Tokyo were ever so high in the late 1980’s, that buildings occupying them came to be mere baubles in decorating them, and were consistently being pulled down – even a year after completion – in order to have something more captivating stand in their place.
When the bubble did eventually burst, which came after the implementation of higher interbank lending rates, the stock market tumbled. Financial institutions which had lent money without the proper due diligence – were soon dead in all but name.
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