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The Renewed Promise of Abenomics

TOKYO – Japan’s Liberal Democratic Party scored a decisive victory in the December 14 parliamentary election, with Japanese voters demonstrating their overwhelming approval of Prime Minister Shinzo Abe’s macroeconomic policy agenda. Though voter turnout was relatively low, owing largely to the somewhat technical nature of the issues, the election’s message was clear: most Japanese abhor the prospect of a return to the grim economic trajectory that prevailed in Japan before “Abenomics.”

When the first “arrow” of Abenomics – a fiscal stimulus program – was launched nearly two years ago, asset markets' immediate response was positive. The second arrow of Abenomics – monetary easing – intensified these effects.

In the last two years, Japan’s stock market has almost doubled in value, increasing the wealth of Japanese consumers. Moreover, the yen has fallen by nearly one-third against the US dollar, from around ¥80 to nearly ¥120 per dollar, invigorating Japan’s export industries.

Even more encouraging are developments in the labor market, which, unlike those in asset markets, reflect outcomes, not expectations. Here, too, the news is good. The labor market has tightened, with unemployment standing at 3.5% and the job-to-applicant ratio above parity.