Japanese economy is seeing signs of revival under Shinzo Abe, who took office… (YURIKO NAKAO/REUTERS )
TOKYO — After two decades of chronic recession, Japan again feels like a boomtown. Its biggest companies are raking in money. It has the world’s best-performing stock market. The latest forecasts suggest Japan, in the next year, could grow more quickly than any wealthy nation but China.
Consumers — especially the wealthy ones — have caught the spirit. They’re splurging at high-end restaurants, department stores and auto showrooms. Ferrari sales this year are up nearly 50 percent, according to media reports.
The revival is only months old, and its staying power remains very much up for debate. But already it has surpassed what many Japanese thought was possible for an aging country whose decline had started in recent years to feel inexorable.
The architect of this resurgence is Prime Minister Shinzo Abe, who took office in December pledging not only to recharge Japan’s economy but also to change the way Japan thinks about itself. “Japan is back,” he frequently tells audiences. And he has deployed the most radical economic policymaking plan of Japan’s 20-year post-bubble era to make it so.
His strategy, commonly dubbed “Abenomics,” calls for a combination of monetary easing, government spending, and economic reforms — “three arrows,” he says, in reference to a samurai teaching that three arrows bundled together won’t easily snap.
None of the arrows, by itself, is revolutionary, but they reflect a breadth of vision and coordination that no leader until Abe seemed interested in. His ambition for a more vibrant Japan fits with the zeitgeist. Regain lost might, many Japanese think, and they’ll be better equipped to contend with an increasingly boisterous China, which took Japan’s spot in 2010 as the world’s second-largest economy.
Abe’s chief goal is to end a 15-year period of deflation, the vicious cycle of falling profits, prices and wages that squelches consumer appetite and slows economic growth.
So far, only the first two of Abe’s arrows have been fired. In January, Abe signed off on a 10.3 trillion yen (roughly $100 billion) stimulus and, more significantly, pressured the central bank to overhaul its conservative monetary policy. The bank complied last month, announcing a 2 percent inflation target and saying it would nearly double the amount of money in circulation.
Dating back to their early 1990s, more than a dozen Japanese prime ministers have tried to grapple with the nation’s economic woes. But none until Abe convinced the central bank to pursue quantitative easing on such a mass scale. Economists now criticize the bank for its decades of excessive caution, failing to stir investors, and abetting what people here describe as two “lost decades.”
The early returns on Abe’s approach are promising. Since November — the point when investors began anticipating an election victory for Abe’s Liberal Democratic Party — Japan’s stock market has surged some 60 percent. Car sales are increasing at their steadiest rate since 1985. And in the first quarter of this year, the gross domestic product grew at an annualized rate of 3.5 percent.
“I think many Japanese feel this is the last chance for change,” said William Saito, a Tokyo-based entrepreneur and venture capitalist. “After this, there are no more rabbits to pull out of the hat. If we hadn’t lost confidence before this, boy, will we lose it this time if we screw this up.”
A recovery, or just a blip?
So far, Abenomics has worked even better than forecast. The Bank of Japan’s monetary easing helped devalue the yen, which in turn helped the nation’s export-dependent giants sell more (and cheaper) products overseas. That meant inflated corporate earnings and an eye-catching stock market rally. Only one in six Japanese people own stocks, but they still felt a psychological lift: Consumer spending is up in recent months.
For now, shopkeepers aren’t certain whether to credit Abenomics, but they have noticed a difference in recent months. Even in some stores that cater to middle-class customers, profits are up.
“People seem more willing to spend an extra 1000 or 2000 yen,” or $10 to $20, said Mami Tomino, owner of a flower shop along a thriving shopping arcade in the Tokyo suburbs. “I have the same number of customers, but more people are buying the higher-priced bouquets.”
But many economists still fear the pick-up could be brief. For Japan’s economic revival to last years rather than months, companies need to spread their newfound profits by building factories, increasing investment and boosting wages. Consumers need to maintain demand into next year, when the consumption tax is due to increase, potentially dampening spending. The country’s tax base needs to expand, helping the government trim its sky-high debt.
“But so far, not enough of this is happening,” said Yukio Noguchi, an economist at Waseda University in Tokyo. “The real economy hasn’t changed.”