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Luncheon: From Abenomics to Suganomics

Luncheon: From Abenomics to Suganomics

Tokyo (SCCIJ) – October Luncheon speaker Professor Sayuri Shirai of Keio University reviewed almost eight years of Abenomics with breathtaking speed and gave a rather somber outlook on the challenges the new Prime Minister Yoshihide Suga faces. Almost 50 guests and members of the SCCIJ enjoyed her fast ride through often little-known features of the Japanese economy.

Luncheon: From Abenomics to Suganomics

Professor Sayuri Shirai of Keio University speaks at the SCCIJ October Luncheon.

Japan and Covid-19

Shortly before the end of Shinzo Abe’s long premiership, in the April to June quarter of 2020, Japan’s gross domestic product (GDP) declined by 9% compared to the previous quarter. “This was better than in the U.S. and Europe because we did not have a lockdown,” Professor Shirai started. But this difference would provide no real comfort: Compared to the GDP level of the first quarter of 2015, Japan’s Covid-19 economy remained nearly flat and did not show any strong growth performance compared with other major economies like the United States, the euro area, and China. “Our economy is very stable but lacks dynamism,” she explained.

Also, the Japanese government supported the economy the most during the toughest period of the pandemic. The magnitude of the fiscal support was large and comparable to other major economies. But the scale of monetary accommodation was greater as the Bank of Japan increased its balance sheet by 20% of GDP significantly faster than the Federal Reserve Board in the U.S. (+15% of GDP) and the European Central Bank (+17%).

However, Japan’s economy’s rebound in July-September appears very weak compared to the United States and its continued moderate rebound currently will delay the return to the pre-pandemic level. Economic growth next year is expected to be weak. According to the latest OECD projection, after shrinking by 5.8% this year, Japan’s GDP will grow only by 1.5% in 2021. Professor Shirai named four reasons: weak manufacturing, the consumption tax hike in October 2019, excessive dependence on inbound tourism, and the declining population.

Luncheon: From Abenomics to Suganomics

Members and Advisors of the SCCIJ Executive Committee with October Luncheon Speaker Professor Sayuri Shirai as well as Swiss Ambassador and SCCIJ Honorary President Andreas Baum (far left).

A review of Abenomics

She informed the audience about a growing consensus regarding the achievements of the Abenomics policy which initially consisted of a bold monetary policy, a flexible fiscal policy, and economic growth strategies. First, Abenomics had a limited impact on raising aggregate demand and inflation. The potential growth rate of the Japanese economy did not climb together with the average growth rate of 1% which was well below the target of 2%. Second, there were positive impacts such as higher real estate prices and stock prices, a depreciation of the yen exchange rate, and an increase in corporate profits.

The number of people in employment increased by 5.2 million. However, 70% of this upturn consisted of non-regular workers whose wages are much lower than regularly employed people. Also, aspired fiscal consolidation failed. The target of turning the primary balance to surplus by 2020 was postponed to 2025. Besides, social security reform did not make any progress. The target for the nominal GDP in 2020 of 600 trillion yen as well as a core inflation rate of 2% was not reached. As two central problems, the speaker mentioned the stagnating income coupled with high inflation expectations by households and low labor productivity, especially in the services sector.

What Abenomics has left

Professor Shirai summed up the Abenomics legacy as such: The balance sheet of the Bank of Japan has grown to 130% of GDP, larger than at any other major central bank. As a result, the BoJ now owns 48% of all central government bonds. “Some point out that this is monetarization of debt”, the speaker stated. The Nikkei 225 went up to the highest level for 20 years but is no longer growing. Also, its price-earnings rate has shot up due to the pandemic impact on corporate profits, while stock prices stayed at an overvalued price level. Thus, the stock market would not reflect the economic conditions, she argued. Only the real estate REIT index experienced a correction.

Luncheon: From Abenomics to Suganomics

The SCCIJ October Luncheon followed social distancing rules and allowed only six people at one table.

An outlook on Suganomics

The speaker predicted that “sustainability” would become a new focus of global corporate business practices. Hence, Prime Minister Suga must focus on achieving sustainable economic growth rather than raising economic growth. Fiscal policies should put a greater emphasis on reducing income and asset disparity, on decarbonization, and e-government. Central banks should add sustainability to their classic goals of achieving price stability, financial stability, and high employment.

The economic policy of Prime Minister Suga is focusing on the containment of Covid-19 and its compatibility with growth, but so far he has not adopted new measures to cope with the containment, Professor Shirai said. Other policy goals are promoting deregulation, establishing a digital agency, consolidating regional banks, reducing mobile phone fees, and possibly providing additional support to the poor.

Decarbonization as new goal

According to Professor Shirai, the current agenda of Japan goes well beyond these measures. First, there would be poor e-government and inadequate digitization in health care, education, and among small and medium-sized enterprises. Conducting social security reform is related to digitization of health care and elderly care.

Second, the energy policy is inconsistent with the 2015 Paris Agreement due to excessive dependence on coal. Mr. Suga will announce its commitment of achieving carbon neutrality by 2050, but we must see detailed measures he will introduce. Transforming the economy to decarbonization requires significant changes in the industrial structure and he needs to cope with resistance.

Third, low productivity indicates insufficient corporate governance reforms. “To conclude, the problem of this country is that the government never shows an always too optimistic medium-term projection (such as 10 years) and avoids having a long-term vision (such as 20 to 30 years),” she finished her speech and earned big applause.

Biography of the Speaker

Dr. Sayuri Shirai is currently a professor at Keio University and is also a senior advisor to Federated Hermes EOS (stewardship service provider) located in London. She holds a Ph.D. in economics from Columbia University. She was also a visiting scholar to the Asian Development Bank Institute in 2016-2020. She was a Member of the Policy Board of the Bank of Japan (BOJ) in 2011-2016, who is responsible for making policy decisions. She taught at Sciences Po in Paris in 2007–2008 and was an economist at the IMF in 1993-1998. More can be found here.

Text and photos: Martin Fritz for SCCIJ

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