Shinzo Abe’s three arrows programme has valuable insights into what to do and not do
“Buy my Abenomics!” urged Japanese prime minister Shinzo Abe in 2013. And we did. In an all-time triumph of Something-nomics branding, Mr Abe convinced the world that his so-called three arrows of “bold monetary policy, flexible fiscal policy and a growth strategy” would transform Japan’s economy. Now Mr Abe is stepping down after more than eight years in power, it is time to judge: did Abenomics succeed?
The simple answer is: no. The central goal of Abenomics was an inflation target of 2 per cent. Yet even before Covid-19, Japan never got closer than about 1 per cent. This is failure.
But like a football team that fails to win the league, defeat does not necessarily mean you were bad, just not good enough. Abenomics had its moments. For a world struggling with “Japanification” — a slide towards stagnation, deflation and ultra-low interest rates — it holds powerful lessons.
Lesson one is that monetary policy works. The initial “bazooka” of massive asset purchases by the Bank of Japan in 2013 was highly effective. Bond yields fell; stock markets boomed; and most important, the yen fell below ¥100 to the dollar, a boon to Japanese industry. Lending grew and the country enjoyed record employment during the Abe years. It is almost impossible to argue that Japan would have been better off with higher interest rates and a stronger yen.