Two years have passed since Shinzo Abe returned as prime minister of Japan and implemented a new economic policy that was quickly dubbed “Abenomics.” Enough time has passed to give a preliminary assessment of what Abenomics has accomplished. The answer? Not much.
Abenomics consists of three parts, or “arrows”: a monetary policy of aggressive quantitative easing, temporary fiscal stimulus to lend impact to the monetary policy, and structural reforms or deregulation to enable higher long-term growth.
The concept behind this three-pronged approach was fine. On average, economic growth has been less than its potential for more than two decades, while a low but persistent deflation took hold. The goal of Abenomics was to bring about 2 percent positive inflation and 2 percent real GDP growth.
On monetary policy, Abe was lucky. The governor of the Bank of Japan was coming to the end of his fixed term at the end of March 2013. This enabled Abe to appoint a new governor who endorsed aggressive quantitative easing—with a target of doubling the monetary base in two years, in order to reach the inflation and growth goal.
