Japanese Prime Minister Shinzo Abe announced his plan about a year back to rejuvenate Japan’s economy and bring it out of years of recession and deflation. It is interesting to take note of some of the decisions taken, and their impact on the country’s economy.
Abe’s “three arrows” to achieve this goal are monetary easing, expansive fiscal policy, and long-term growth. The three, in combination are to reinforce each other, and transform Japan’s economy – which has recently dropped to 3rd place among the top countries according to GDP.
Since “Abenomics” or Abe’s economic policy changes have come into effect, the actual output has come closer to potential input, with the difference dropping below 1.5% (deflation gap). While looking at the Nikkei index, Japan’s stock market, it has recorded unprecedented growth in 2013, with it touching its highest closing level in 6 years on December 3rd, 2013. Simultaneously, asset prices have risen, and corresponding improvements are seen in the labour market – unemployment rate has come down to 4%.
All this has had an impact on the GDP as well, with a growth rate of around 4% during the first half of 2013. With respect to long-term growth, one factor that is quite useful is the filing of patents during a year. It is said that this would forecast how well an economy would do in the next 10 years. Japan had the highest number of patent filings in the world in 2012. Innovation along with improved trade with emerging economies, which Abe has voraciously encouraged, will ensure the vision of long-term growth.
Vaibhav Sharma 