TOKYO — Prime Minister Shinzo Abe’s updated plan for reviving Japan’s economy and achieving a GDP target of 600 trillion yen ($5 trillion) suggests a recognition that earlier policies are not doing the trick.
Abe took office in late 2012 vowing to end deflation and rev up growth through strong public spending, lavish monetary easing and sweeping reforms to help make the economy more productive and competitive. So far, those “three arrows” of his “Abenomics” plan have fallen short of their targets though share prices and corporate profits have soared.
Recent data suggest consumers and corporations remain reluctant to step up spending—the key to getting growth back on track.
Japan’s inflation rate remained flat at 0.2 percent in August, according to data reported Friday, with core inflation excluding volatile food prices slipping 0.1 percent. A preliminary survey of manufacturers released Thursday showed a sharp drop in export orders. Recent corporate investment figures were likewise worse than expected.
In a news conference Thursday, Abe did not dwell on those harsh realities.
“Tomorrow will definitely be better than today!” Abe declared on national television. “From today Abenomics is entering a new stage. Japan will become a society in which all can participate actively.”
Abe announced his updated economic platform after his re-election, unopposed as head of the ruling Liberal Democratic Party. The initiative also appears aimed at shoring up support ahead of elections for the upper house of parliament next year, analysts said.
The new targets indicate a fresh resolve to focus on the economy after enacting security legislation enabling Japan’s military to participate in combat even when the country is not under direct attack.
Abe’s popularity ratings took a hit after the “collective self-defense” law was forced through parliament, as thousands of Japanese converged outside in protest.
Apart from his 600 trillion yen ($5 trillion) GDP target, Abe says he is determined to ensure that 50 years from now the Japanese population, which is 126 million and falling, has stabilized at 100 million.
He also set a target for increasing the birth rate to 1.8 children per woman from the current very low rate of 1.4.
Abe said his new “three arrows” are a strong economy, support for child rearing and improved social security, to lighten the burden of child and elderly care for struggling families. But with Japan also committed to reducing its massive public debt, it is unclear how he intends to achieve those goals.
Abe recently announced plans to accelerate reductions in corporate taxes. The central bank also is widely expected to add to its already unprecedented monetary easing by pumping more cash into the economy later this year.
Japan’s economy, estimated at $4.6 trillion in 2014, contracted at a 1.2 percent annual rate in the April-June quarter, and China’s slowdown and recent market turmoil are hindering a rebound.
At Japan’s recent pace of growth, achieving Abe’s goal—for which he set no timetable—would be a stretch. The Japan Center for Economic Research, an independent think tank, is forecasting growth at 0.9 percent this year and 1.5 percent in 2016. A sales tax increase planned for April 2017, to 10 percent from 8 percent now, is expected to dent growth for that year.
Japanese officials acknowledge in private that the country needs a “great leap” in productivity, which is hard to attain at a time when the labor force is shrinking due to the aging population.
Given that reality, Japanese employers have been reluctant to invest or to raise wages, even when many are short-handed.
With wages still barely rising, families have tended to save, and increases in demand from monetary stimulus have been weaker than expected.
