Nicholas Spiro

Abe is leaving office, but Abenomics is here to stay

The need for aggressive monetary easing, the most radical of Abe’s ‘three arrows’, was appreciated by the Fed and ECB even before Covid-19 struck. Given a boost by the pandemic, Abe’s experiment is now the norm in the world’s major economies

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People wait to cross a road in the Marunouchi district of Tokyo on August 28. The coronavirus crisis has given Abenomics a new lease of life, and the programme is unlikely to be reversed. Photo: Bloomberg

Nicholas Spiro

Published: 9:45am, 4 Sep 2020Updated: 9:45am, 4 Sep 2020

Few statesmen have left such an indelible mark on economic policymaking as Shinzo Abe, Japan’s longest serving prime minister, who last week announced his resignation due to ill health.

His signature programme – a three-pronged plan involving aggressive monetary easing, fiscal expansion and structural reforms, designed to rescue Japan from two decades of near stagnation and on-and-off deflation – enthralled financial markets when it was launched shortly after Abe became prime minister for the second time in December 2012.

Among the “three arrows” of Abenomics, the most radical, and by far the most publicised, component was exceptionally loose monetary policy. Steadfastly pursued by Bank of Japan governor Haruhiko Kuroda, the groundbreaking measures included yield curve control – designed to keep the yield on Japan’s 10-year bond at close to 0 per cent – and the purchase of exchange traded funds.

For a while, Abenomics seemed to be working wonders. In 2014, Japan’s headline inflation rate briefly surpassed 3 per cent, exceeding the 2 per cent target and a 23-year high. What is more, the yen fell dramatically in the years following Abe’s return to office, proving a boon to Japan’s exporters. Yet, policy blunders and external shocks undermined the credibility of the programme, casting doubt over its design and implementation.

02:19

Japan’s Prime Minister Shinzo Abe resigns for health reasons

However, the coronavirus crisis has given Abenomics a new lease of life. Not only is the programme unlikely to be reversed – given that Kuroda, who has made his mark pursuing aggressive monetary easing, is only halfway through his second term – the first two arrows have been embraced wholeheartedly by leading policymakers across the globe.