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An Evening Talk with Philippe Avril on Abenomics and the Future of Japan

ICCJ proudly presented Mr. Philippe Avril, Chief Country Officer of BNP Paribas in Tokyo, in giving a presentation on the much talked about economic policies of Prime Minister Abe, aptly called “Abenomics”, on Wednesday February 4th, 2015.

While Abenomics has received support and praise, critics have questioned the effectiveness of the “Third Arrow”, or deregulation proposals.

Abe pledged to end the deflation that had gripped the nation since the 1990’s. Prime Minister Shinzo Abe’s first move, the massive monetary stimulus taken by the Bank of Japan - with a target set to achieve a 2% annual inflation - has greatly pushed down the yen’s value. The yen’s steep fall in turn elevated earnings of globally-operating large firms to record levels, and the surging share prices boosted the assets of wealthy consumers. Flexible fiscal policy, the second move, saw the government spend 10.3 trillion yen ($116 billion) to drive a recovery from a recession in Abe’s first major policy initiative to end deflation and boost growth. Along with additional measures such as the upcoming Olympics and the increase in consumption tax, it seemed that Abenomics was on a good start.

Conversely, the broader divisions of the economy have not exactly reaped the same benefits. The “Third Arrow” has been claimed that it was not an “arrow”, and more likely resembled a series of small “needles”. Targeting issues such as corporate governance and women’s employment is indeed important; however, labour market reforms and exports have not reached expectations. The rise in exports have not kept pace with the yen’s fall as many firms had already shifted their production overseas, while the weaker yen meant higher import costs for many of the small and medium-size businesses. While the Abe administration put unusual pressures on companies to translate their increased profits to wage hikes for their workers, pay raises have been outpaced by rising prices due to the weak yen and, beginning in April, the consumption tax hike. People’s net wages along with consumer spending, which accounts for 60 percent of Japan’s gross domestic product, has fallen consecutively in the last few months.

Mr. Avril also stressed the importance of Japan’s shrinking population dilemma. Centenarians are the fastest-growing segment of the population. With the workforce rapidly shrinking, Japanese companies are discussing subjects such as higher immigration and encouraging more women to join the workforce. Additionally, the “social contract” discouraging layoffs made companies hesitant to hire workers with good salaries and benefits. Japan’s low jobless rate came with more low-paying part-time or temporary jobs, especially for young people who came of age in the deflation period. A nation scaling back its future ambitions to cushion its elderly had undermined opportunities for its youth.

Can standards of living continue to grow? Can public debt be reduced without inflation? What is the long term economic model for Japan’s future? These were some food for thought brought up at the end of the talk. It is difficult to know what the future holds for Japan; however, with an optimistic outlook, we can conclude that further action is needed to save the Japanese economy.

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