Abenomics swings into action
Prime Minister Shinzo Abe has won praise for tackling Japan's economy soon after taking office but critics say stimulusis more of the same
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Shinzo Abe was as good as his word. Two weeks after being chosen as Japan's prime minister, his government announced a huge package of stimulus measures with a headline number of 20.2 trillion yen (HK$1.75 trillion), of which 10.3 trillion yen will come in government spending.
The aim is to boost Japan's sickly recession-hit economy by 2 per cent and create 600,000 jobs. If nothing else, Abenomics, as Abe's programme has inevitably been called, means action.
The barrage of advance publicity, the big numbers and the speed of action have already had the beneficial impact for Japan's big exporters of weakening the yen to 89 against the US dollar.
Most economic commentators have praised Abe, but the disturbing facts remain that this is very much the medicine as before, and it is not clear if Abe has the imagination to tackle Japan's underlying economic problems.
The country remains very much the contented frog luxuriating in a warm bath, unable to appreciate that the water is being heated towards boiling point. Abe's measures might lower the temperature slightly, but his heavy spending will increase the pressure on already high indebtedness, and he has not created opportunities for the frog to escape its dangerous lethargy.
A critic might say the measures would produce an immediate short-term boost - in nice time for elections in July for the upper house of parliament where the government is in a minority.
It is too easy to be blinded by the huge numbers and forget that between 1992 and 2008, Japanese governments launched 18 stimulus packages, together worth a nominal 205 trillion yen. The result was the same each time, a short-term boost to the economy but no long-term structural change, followed by a new stimulus package that included repackaging of old measures.
This time round, the Abe stimulus promises - yet again - a focus on infrastructure, and a mixture of new projects along with repairs to roads, bridges and tunnels to make sure that they are earthquake resistant. Without seeing the list of spending proposals, it is not easy to judge their effectiveness.
In the past, big construction firms and politicians benefited from a mutual back-scratching policy that gave the companies business, and the politicians new roads, railways and town halls to boast about, along with handsome contributions to their campaign funds.
Japan today could do with new infrastructure spending, but mainly to check the soundness and repair and renovate ageing projects, which are less glamorous for politicians seeking re-election than sparkling new schemes.
Northeastern Japan, ravaged by the earthquake, tsunami and nuclear meltdown in 2011, could also do with faster and better directed spending. The nuclear clean-up, directed largely by construction companies, which have failed to call in foreign expertise, has been patchy and slow, and residents of the area say the government has forgotten them.
More than 3 trillion yen has been earmarked "to improve the competitiveness of industry and spur innovation", though whether the government can inspire and direct a sophisticated but ageing economy seems doubtful.
Abe expressed his confidence. "We are making a bold shift towards an economic policy that will create wealth through economic growth. We need to say goodbye to the shrinking economy and aim to achieve a strong economy where innovation and new demand lead to more jobs and income."
These are fine words, but shoring up old infrastructure will only create jobs while the money is flowing. Abe has promised to defeat deflation, which has dogged the economy for two decades, and has been actively hectoring and cajoling the Bank of Japan to set a 2 per cent inflation target.
Some economists are impressed. Bill Witherell of Cumberland Advisors said 2013 could be "the Year of Japan" as Abe finally got the country's act together. Peter Tasker of Arcus Research said that manipulating a currency to depreciate and help keep the economy moving was widely practised and Japan's only sin was to be the first Group of Eight economy to be caught doing it.
Manufacturers welcome the decline in the yen. Akio Toyoda, the president of Toyota Motor, said almost with a sigh of relief, "We're beginning to see the light." For efficient carmakers, the fall in the currency will help restore their competitive edge.
But for others, particularly electronics concerns, more may be needed.
Japan's big companies have become sluggish and unprofitable, as Panasonic, Sharp and Sony demonstrate, and have been out-thought and out-produced by nimbler rivals from South Korea, China and Taiwan.