“Abenomics” is a term which has not gained much ground in the English speaking press, but it’s become a real buzzword in Japan since AbeShinzō became Prime Minister in December.
Abe, who had served a short and unsuccessful term in the past, managed to regain support by promising a series of sweeping economic reforms, coined “Abenomics” to tackle the stagflation many previous administrations had struggled with.
Abenomics is based on three principles:
- ‘radical’ monetary policy (i.e. increasing inflation to devalue the yen).
- fiscal policy (i.e. increasing government spending, mostly on infrastructure, to create jobs and demand).
- a growth strategy to increase private investment (i.e. encouraging people to spend to support local industry).
Despite the recent fall in the price of the yen, the government hasn’t actually done anything concrete yet. Because of this, it’s unclear what effects these policies will have on industry and on society as a whole. In the article below Reuters News asks if “Abenomics” is really the way forward to solve Japan’s problematic ageing society.
From Reuters Japan:
Angle: Abenomics Reinforces Suffering of Elderly
[Tokyo, March 13, Reuters] 20 days after the appointment of his Cabinet, Prime Minister Abe Shinzō and Kuroda Haruhiko, governor of the Bank of Japan, have said they will hurry up implementing ‘Abenomic’ economic policies aimed at avoiding deflation and reviving growth. One consequence of this, though, is that the elderly who helped foster economic growth after the war will now suffer even more from the effects of Abenomics.
Abenomics might indeed be necessary for the Japanese economy today, but one can also say that the Japan of today was created thanks to the elderly who lifted Japan up as a global export powerhouse but are now making preparations for a life on savings and pensions.
A couple in their 70s who ran an Imagawayaki shop in Tokyo for almost half a century said with a sigh to our Reuters interviewer: “We thought the savings we put in our bank account after retiring would increase, but they didn’t. We don’t know what’ll happen to us in the future.”
A screenshot of the Reuters “Abenomics vs Demographics” tool. You can use the tool here.
Twenty years after the collapse of the bubble economy, the Japanese economy is still stagnating, but the mild deflation also slightly increased the buying power of pensioners. Abenomics, which aims to spur inflation and cause the reverse to happen, will both figuratively and literally place a heavy burden on the elderly by contriving to fund growth.
However, some analysts and economists warn that Abenomics might start a financial crisis before even showing any results as high inflation and prospective tax increases could alter the value of the 700 trillion yen [about 7.42 trillion USD] in property owned by the elderly.
Haji Kōsa, chief economist at the NLI Research Institute points out that “Senior citizens’ savings will start to collapse in the future. If this happens, it will become much harder to issue new government bonds.”
Japan’s Gross Domestic Product (GDP) per capita tripled in the quarter century after the 1964 Tokyo Olympics. This was mainly thanks to a series of policies including monetary easing and large-scale fiscal stimulus which share many similarities with Abe’s current economic policies. The second Abe administration plans on spending 100 trillion Yen [about 1.06 trillion USD] on infrastructure in the 15 months to come.
Kuroda Haruhiko, Governor of the Bank of Japan, has also made it clear that he actively supports monetary easing.
In the expectation of the effects of Abenomics, the yen lost almost 20% of its value against the dollar since November of last year. When the yen loses 1% of its value, it pushes up profit margins of Japanese companies by 1%.
Compared to the 1960s however, Japanese society has undergone widespread ageing and a dramatic increase in debt. Japan’s public debt has swollen to more than double the amount of its annual GDP, the highest percent of public debt in the world.
Mr. Haji from the NLI Research Institute says that “the Japanese government has often resorted to fiscal stimulus and monetary easing but the results were always temporary” and that “This might be the last time the government tries a stimulus package. This is because public debt is much too high and society is gradually ageing.”
About 90% of Japanese public debt is shouldered by private savings, and a large part of these savings belong either directly or indirectly to the elderly. Citizens over 60 make up 25% of the Japanese population but according to the Bank of Japan, about 60% of household savings and pure assets, a net worth of 1,156 trillion Yen [about 12.25 trillion USD], belongs to them.
And the proportion of society made up by the elderly is only increasing. According to the government, by 2035, 30% of the total population will be over 65.
Most senior citizen’s financial assets are kept in bank savings accounts, and banks faced low growth rates and stagnating loans use most of this money to invest in public debt (i.e. government bonds). The same rule applies to pensions and life insurance which also need a strong degree of safety.
Abe is gambling on the fact that the high inflation rates would push these elderly people and their families to increase their consumption, starting a virtuous cycle of increasing national demand and job creation where the increase in tax revenue would go towards lowering public debt.
Economist point out that it is extremely difficult predict just how much consumption and tax revenue will increase. On one hand, it might lead to the elderly actually increasing their retirement savings as inflation makes a hard hit on their purchasing power.
- A Japan Times cartoon showing the prescription for “Abenomics”.
In response to this, Cabinet Public Relations Secretary Ono Hikariko addressed a written answer to Reuters saying that because pension payments were linked to consumer prices, they did not think that the purchasing power of retirees living off pension plans would decrease, and that the government would increase pension provisions for the poor.
Despite all the risks, many economists say that Japan has no alternative but to increase inflation. As low birth rates and rapid ageing continue to worsen, there no doubt that Japan will face a financial crisis if the government does not manage to decrease national debt within the next 10 years.
The Abe administration cut plans to reduce pension payments but inflation will increase the speed at which wealth is transferred from the old to the young.
The Abe administration has also engaged in tax reform. They plan to install a 20% sales tax going towards funding public debt in 2016, and inheritance tax is scheduled to go up from 50% to 55% in 2015. They are considering a special exception on the gift tax for fixed amounts, however, for grandparents who want to transfer single large sums of money for the education of their grandchildren.
Arguing that corporate marketing executives should start working to increase support for grandparents thrown into this new tax system as soon as possible, Sakai Takamasa, from the Hakuhodo Institute of Health and Living pointed out that “this could perhaps lead to an increase in the number of consumers”.
Those who support Abenomics say that what Japan needs more than anything is an increase in domestic spending. The skeptics who oppose Abenomics on the other hand argue that the government is not protecting senior citizens’ precious savings and that there is no guarantee this will make them bigger consumers.
Takeshi Fujimaki (62), from the investment advisory Fujimaki Japan, says that “all the old people” will spur hyperinflation and that the savings everyone gathered over the years would disappear. Mr. Fujimaki advises his clients to invest their saving in foreign bonds of foreign currencies.
Interest rates on 30 year bonds have gone down to what they were in mid-2010. One reason for this might be because investors think that even though “elderly savings” are being used to buy up public debt, the Bank of Japan will cancel this out when it buys up [bonds]. Some investors, however, say that this could also be a prelude to the failure of Abenomics.
Comments from Yahoo! News:
jetさん:
Even the all the people who loved and did lots of school sports when they were young and were lucky during the economic bubble are old now. Can’t be helped that we need to support them.
jetさん:
If we don’t support the elderly, the whole of Japan will fall apart.
牛丼大王さん:
On the other hand, are there any young adults who aren’t suffering today?
あつさん:
Said differently, does this mean that they were able to live comfortably because of today’s deflation? Their pensions were not changing but consumer prices were going down. These conditions will only increase bankruptcy, [unfair] welfare and suicide.
jetさん:
Well… there is not one single policy which will make every citizen happy. The issue is whether, taken as a whole, it will lead to growth.
tka*ki2*さん:
It just disgusts me that they are trying to escape their responsibilities just because they’re old. It’s because all those people aimed too high without paying enough taxes that Japan has such a high public debt problem today.
hangyaさん:
There are tons of young people who can’t be bothered to put themselves out, but there are also plenty who show they understand what Abenomics really is and the elderly also have a bit to learn from the example of the young.
haihai19850813さん:
All the same, do you think younger generations should shoulder all the burden?
Ｉ16さん:
[Policy makers] put young people, who are all the workers contributing to Japan’s future, last and keep using the budget to to preserve the interests of the elderly, including themselves, so they should change their irresponsible plans
BBさん:
Well, yeah, everything, has pluses and minuses, whether it’s a strong Yen, a weak Yen, inflation or deflation. You can’t get 100% satisfaction. For example, even if 90% of people agree, you can’t be sure whether or not you’ll also meet with 10% of people who disagree. The opposite could also happen.
What is really horrible about the mass media is that whatever happens, they’ll always focus on the negative points, make people feel uneasy and attack the government.
momo168さん:
Every single policy has merits and demerits. It would be worst to make the younger generations who support the elderly poor.
dhalphaさん:
This is a point of view which only focuses on one aspect and ignores the whole.
愛と絆なんてウソっぱちの世の中さん:
There is a huge gap between all senior citizens who were government workers or executives and all other senior citizens.
tit*d*ru11さん:
Even if they have the money, old people should use it soon cause they’ll probably die soon. And this is not because Abenomics is a strong [policy]. The name is weird.
マルクス君さん:
The start of an era of incredibly high taxes～
tak*h*ro_n*tc*mさん:
Pensions and social welfare should be cleaned up asap. Should we let those Zainichi parasites eat Japan out of house and home?
ああさん:
Feel a bit of pity for the younger generations who support your pensions idiots!
ジョンさん:
I’m really sorry but I would like Japan to think about young people now
ごらごらさん:
The elderly today are already accustomed to inflation. The young are the ones who are being thrown into an economic world they are not used to.
xfb*y*98さん:
I let out a sigh of despair every time I hear of a pension fraud.
