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Can Abenomics Succeed?
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Can Abenomics Succeed?

Overcoming the Legacy of Japan’s Lost Decades

Dennis Botman, Stephan Danninger and Jerald Schiff
IMF, 2015
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7

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Japan’s economic journey since the 1980s has been intriguing. In some ways, the country’s problems are unique, but it has also had to tackle issues similar to those of other Western nations, only more so – and first. To some, Prime Minister Shinzō Abe’s raft of reforms, called Abenomics, is a disconcerting mix of right-wing structural adjustments and left-leaning quantitative easing and massive deficit spending. While many of Abe’s proposed reforms seem uncontroversial and sensible, they also entail attempts to make corporations less prudent and more profit-hungry – an aspiration that may startle Western observers. Japan’s strengths – including the size of its economy, its robust currency and its global trading position – contribute to an economic picture that feels simultaneously extreme and logical. This compendium of essays by economists Dennis Botman and Stephan Danninger, professor Jerald Schiff and a team of area experts and International Monetary Fund contributors is quite dry in places, as you might expect, and the different contributors often go over the same ground – sometimes with slightly different conclusions. But their explanations are fascinating, and their top-notch factual content is comprehensive. getAbstract recommends this text to economists, executives and investors with the note that Japan’s economic progress may offer some important lessons for other countries.

Summary

Japan’s Lost Decades: Low Growth and Mild Deflation

In the decades after World War II, the formidable success of Japan’s manufacturing and export sectors brought with it an extreme asset price bubble that began to implode around 1990. The economy was slowly starting to recover when the 1998 Asian financial crisis hit. It triggered a full-blown banking panic and severe credit crunch in Japan, and it exposed the extent of the nonperforming loans hiding on corporate balance sheets. The Great Recession pulled Japan back into recessionary territory again, and the 2011 Great East Japan Earthquake delivered another economic shock to the system.

A particular and, in some respects, unlucky combination of factors culminated in strong deflationary pressures and a lack of domestic demand in Japan during its lost decades. These factors included a worldwide trend toward lower inflation and a frequently over-strong yen, thanks to Japan’s resilient exports, its people’s propensity for saving and the yen’s attractiveness as an inherently safe-haven currency in difficult economic times. During that period, companies that were still performing well found that holding cash was more attractive...

About the Authors

Dennis Botman and Stephan Danninger are economists with the International Monetary Fund. Jerald Schiff is an adjunct professor at American University in Washington, DC.

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