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Abenomics ensures a robust recovery

Tokyo's economic performance is predictable, but it fears derailment at the hands of political jingoism

Japan not only leads the world in technological innovations but also keeps the world economy on tenterhooks. Its currency, Yen, is a troublesome affair for many across the world, and it is an art to trade with it. Japan boasts the world's second-largest developed economy, and is the fourth in terms of purchasing power parity. Of late, successive triumphs in spurring the economy have led to dividends, and the Yen is out of decades-long deflationary slump. Which is why its recovery is termed as the longest expansion in a decade, or so, leading to enhanced domestic spending.
The credit for revival goes to Prime Minister Shinzo Abe's doctrine of 'Abenomics', which stimulated bank lending, soaring capacity of buyers and investment across the board. Infrastructure development in rural and urban areas on par, and strategic investments in energy, industrial, education and health sector has been a resounding success. Despite trials and errors, the economy had picked momentum and most importantly it had gained the confidence of masses and investors after decades of sluggish growth. The projected growth rate of four per cent with low levels of unemployment has led to trade buoyancy.     
Japan's current history of turmoil is one of happenings. Tokyo has suffered chronic deflation since the 1980s real estate bubble burst. Though the government had pumped in trillions of dollars to lift the economy, going up to the extent of introducing below-zero interest rates. This worked in the long run, but has left the country under the world's largest public debt. This malaise born out of prolonged deflation, however, is yet to be overcome. Which is why the economy has to be micro-managed and had led to increased governmental intervention as a policy tool. Moreover, natural and man-made disasters - such as tsunami and the nuclear meltdown - has added to economic woes of Japan, and is likely to be groped in reconstruction for the next two decades. 
What makes Japan's resilience count in the comity of nations is its political resolve to stage a comeback. It has never been lost on ideas, and despite persistent political weakness, Tokyo has swung surprises. Abe's pledge to reignite the economy with his Abenomics is a case in point. It is a unique package of reforms and government spending, one of the largest in the world, coupled with loose monetary policy from the central bank.  
As Japan slowly and gradually treads on the path of stability, it has a number of tangible factors to account for that could derail its progress in the long run. One of them is the age factor: one in four Japanese is now 65 or older. It is estimated that in the next four decades, more than 45 per cent of the population will be a liability, by virtue of their health and age issues, and the state would have to cope with their well being. At this point, the government is spending almost 80 per cent of social welfare on the elderly. Japan, nonetheless, needs a productive and talented workforce between the age of 22 to 35, so that the chores of the state could be taken care of without resorting to outsourcing. 
Reports say Japan, meanwhile, could lose more than a third of its workaholic population in the next few decades. While Japan at the same time is one of the biggest raw material importing nations, it has to groom its calibre and talented workforce so that the technological decisive edge it enjoys is retained. This intergenerational inequality is directly proportional to not only its GDP growth but also its leadership in regional and world affairs. Perhaps, this is why Abenomics 2.0 lays out a concrete strategy on raising birth rates and expanding social security.
Japan has a couple of challenges to face and the prime among them is to revitalise the economy on sound footing, reforms to make the labour market more inclusive and gradually put an end to heavy subsidies. 
Tokyo's economic performance at this point of time is predictable, but at the same time it fears derailment at the hands of political jingoism. The country's electoral mosaic and its parliamentary history have often led to surprises. Japan should keep itself secure from any kind of somersaults, so that stability acts as a catalyst for reforms in ambit of Abenomics. 
The good point is that Tokyo is successfully treading a cautious path. Japan is opting for farsighted straightjacket precautionary policies, such as investing in long-term subsidies, bonds, vouchers and building a modern infrastructure in rural areas. The farm to industry connection has been localised in Japan, and it is one of the first countries where farmers and production related workforce have an integrated module of interaction. All it has to do is to arrest inflation as it is below target, and concerns debt ballooning.
Japan cannot afford to see Abenomics go down the drain. There shouldn't be any delay in structural reforms, including slashing business regulations and cutting corporate taxes, which will be pivotal in reviving the country's competitiveness. 
- mehkri@khaleejtimes.com