Abenomics

Abstract: ‘Abenomics’ has continued to attract the attention of both the national and international media and a broad range of scholars. There are different and contested views of Abenomics and its impact upon the Japanese economy. This article argues that those more Keynesian-style remedies that form part of Abenomics have not been able to address Japan's longer-term problem of weak demand, especially in terms of private consumption. This is in large part due to the liberalising measures that also form part of Abenomics, and which are incompatible with the Keynesian remedies pursued. Whilst Abenomics has the potential (at least in the short-to-medium term) to improve the profitability of Japanese businesses, in the absence of a corresponding move to redistribute corporate wealth to labour, Abenomics also represents a hazard to future economic growth in Japan.

Abstract: ‘Abenomics’ refers to a new unconventional economic policy regime in Japan since late 2012. It consists of three arrows: unconventional monetary policy (the first arrow), expansionary fiscal policy (the second arrow), and economic growth strategies to encourage private investment (the third arrow). After the new regime started, both the stock and the foreign exchange markets reacted very favorably. The purpose of this paper is to investigate why the markets reacted to the new regime so favorably. Unlike orthodox arguments, we focus on asymmetric behavior between local and foreign investors after December 2012. We show that under the new regime, foreign investors were aggressive in purchasing Japanese stocks and in selling the Japanese yen, while local investors were not. By using high frequency intra-daily data, both structural break tests and regression analysis show that various news shocks had more significant impacts on the stock prices and exchange rates in nighttime than in daytime even if they were revealed in daytime. Noting that local investors tend to trade in daytime, while foreign investors tend to trade in nighttime, this implies that more dramatic market responses to the new regime happened in time zones when foreign investors were active. However, the asymmetry became less significant after the market crash on May 23, 2013.

Abstract: Using industry- and micro-level data, this paper examines why Japan's productivity growth has been slow for such a long time and how it can be accelerated in the future. Japan's capital–gross domestic product ratio continued to increase after 1991, and this increase in the capital–gross domestic product ratio must have contributed to the decline in the rate of return on capital in Japan by decreasing the marginal productivity of capital. On the other hand, Japan's accumulation of information and communication technology capital and intangible investment was very slow. Compared with large firms, which enjoyed an acceleration in the total factor productivity growth in recent years, Japanese small- and medium-sized enterprises were left behind in information and communication technology capital and intangible investment, and their productivity growth has been very low. Furthermore, as large firms expanded their supply chains globally and relocated their factories abroad, research and development spillovers from large firms to small- and medium-sized enterprises seem to have declined.