Abenomics short on real reforms after one year
Prime minister's stimulus measures have cut into yen strength, but he has yet to take bold steps needed to increase Japan's business confidence
One year into Prime Minister Shinzo Abe's economic revival plan, the message from Japan's industrial heartland and economists is clear: he has yet to act on his pledge to stage the nation's comeback as a global economic dynamo.
Abe's recipe of massive money printing, fiscal stimulus twinned with longer-run consolidation and pro-growth policies has already made it into economic vernacular as "Abenomics" and won praise for its initial "print and spend" stage.
But the longer it takes for Abe and his team to follow through with powerful incentives for businesses to take chances, innovate and grow, the bigger the risk that Japan will slide back into the stagnation that has dogged it for the past two decades. And with more debt than ever.
The first two arrows of Abe's "three arrow" plan reversed crippling yen strength, buoyed market and business sentiment, got prices moving up after 15 years of deflation and set Japan on course to outpace most of its peers for two years in a row.
Yet Abe swept to power on December 16 last year promising much more, namely to defy the gravitational pull of Japan's ageing and shrinking population with sweeping reforms to secure sustained, broad-based growth that has eluded Japan for two decades.
On that count Abenomics has barely left the starting blocs.
A trip to Japan's western manufacturing hub around Osaka shows there is a long way to go before the benefits of Abenomics start trickling further down from exporters, shareholders or high-end retailers.
"We just frown when we hear about Abenomics on the news over lunch. We're not feeling any effects of it," says Shigeru Yamada, 50, president and owner of Yamada Manufacturing in Daito in Osaka prefecture, which is home to industrial groups such as Panasonic and Sharp and an ecosystem of smaller suppliers.
Yamada says his firm has replaced a 24-year-old metal folding machine with a new one, its first big investment in seven years, and will be receiving state assistance for that under a simplified government subsidy scheme. Beyond that, nothing has changed for the small family firm that employs 15 people and has won awards for perfecting its production process.
The company expects a loss this year and it has yet to see big manufacturers' optimism reflected in its order books, meaning no pay increases any time soon.
Small and mid-sized firms account for 70 per cent of Japan's corporate jobs and 40 per cent of the value of manufactured goods and parts, so growth will suffer for as long as many of those businesses struggle.
And Japan needs growth to maintain high living standards and cope with swelling ranks of pensioners and the world's biggest public-debt burden. It is worth nearly 21/2 years of its economic output, and looms large over its financial system.
To that end, Abe's government targets real growth of 2 per cent per year, more than double the average over the past two decades and more than double Japan's present potential - or the speed at which an economy can grow without excess inflation.
Sceptics say demographic headwinds are so strong - the 18-24 age group is a third smaller than two decades ago - that nothing short of a miraculous burst of innovation will do, given significant immigration remains a political and social taboo.
Nomura Securities economists estimate the government's strategy will add just over 0.3 per cent to annual output by 2020.
Scant progress in tackling a deep divide between well-protected regular workers and a growing army of temporary and part-time staff tops the disappointment list.
Japan's labour productivity, at less than two-thirds of US levels, offers ample room for improvement but companies must first feel more comfortable to hire and train staff.
"Corporations are afraid to go into new areas in Japan because once they hire people it is almost impossible to fire them," says Tomo Kinoshita, chief Japan economist at Nomura Securities.