Japan's Economics: Abenomics from the Front and Rearview Mirrors

16 Pages Posted: 20 Oct 2017 Last revised: 2 Aug 2019

See all articles by Daniel Murphy

Daniel Murphy

University of Virginia - Darden School of Business

Gerry Yemen

University of Virginia - Darden School of Business

Abstract

This case uses Japan's low-growth episodes since the 1990s to analyze economic policy in an environment featuring excess capacity, low growth, and low inflation. The case discusses the rationale behind “Abenomics”—Prime Minister Shinzō Abe's three-pronged approach to stimulating Japan's economy. In the case, Haruhiko Kuroda, the governor of the Bank of Japan (BOJ), is tasked with making the case to stick with Abenomics after five years under the policy. Were the three prongs of policy changes on course, or was one or more of the prongs failing to reenergize growth? The answer would be especially topical during the upcoming general election, which many viewed as a referendum on Abe's economic policies.

Excerpt

UVA-GEM-0150

Rev. Jul. 19, 2019

Japan's Economy: Abenomics from the Front and Rearview Mirrors

As one of the architects of Japan's economic policies, Haruhiko Kuroda, the governor of the Bank of Japan (BOJ), had much on his plate in the fall of 2017. His five-year term that began in the spring of 2013 would be defined by his close partnership with Prime Minister Shinzō Abe. Abe won the 2012 election with a promise of economic rejuvenation. With that platform, the government aimed to combat low growth by instituting a three-pronged approach consisting of expansionary monetary policy, expansionary fiscal policy, and structural reforms. For the most part, it was difficult to assess accurately the extent to which Abenomics (the nickname for Japan's growth policy) had achieved its mandates. But the prime minister was reelected in a snap election in December 2014, suggesting broad support for the economic policies.

Much like the Federal Reserve (Fed) in the United States, the BOJ, Japan's central bank, conducted monetary policy to maintain the stability of prices and employment. The BOJ also adjusted the money supply through transactions with financial institutions. Adjustments to the money supply influenced short-term interest rates and yields on longer-maturity securities (e.g., government bonds, corporate debt, and personal loans). If the financial system started to crumble, the BOJ was the lender of last resort to Japan's financial institutions. And much like those living in the United States who looked toward the Fed when the financial system looked shaky, the Japanese turned to the BOJ.

As Kuroda inched his way to the end of his five-year appointment as governor of the BOJ, he too would be judged on whether Abenomic policies were effective at improving Japan's economic performance. No BOJ governor since 1988 had served a second term—a fact not lost on Kuroda. Yet what concerned Kuroda more was whether BOJ reflation efforts to stimulate the economy were succeeding. Were the three prongs of policy changes on course, or was one or more of the prongs failing to reenergize growth?

. . .

Keywords: GDP, consumer price index, unemployment rate, interest rates, private consumption, central bank, economic indicators, Bank of Japan, liquidity trap. international, Abenomics, economic policy, economic growth, production factors, fiscal policy, monetary policy, structural reform, Japan, Shinzo Abe, global economies, global markets, economic model, long-run growth factors, causal inference, macroeconomics

Suggested Citation

Murphy, Daniel and Yemen, Gerry, Japan's Economics: Abenomics from the Front and Rearview Mirrors. Darden Case No. UVA-GEM-0150, Available at SSRN: https://ssrn.com/abstract=3056412

Daniel Murphy (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Gerry Yemen

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
2
Abstract Views
227
PlumX Metrics