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September 22, 2017

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Abenomics in trouble, what can Taiwan learn?

Abenomics is having trouble. The popular economic policies implemented since 2012 by Japanese Prime Minister Shinzo Abe have begun to lose their attraction to investors and the general public. Opinion surveys in Japan last month showed that Abe's approval ratings have dropped below 50 percent for the first time since he was re-elected in 2012. In a survey by a Japanese newspaper, more people disapproved of Abenomics than approved of them.

Abe's economic policies are not only being snubbed by the public. Recently released figures show that Japan's economy is not doing as well as was expected, with the nation's GDP declining by 6.8 percent in the second quarter. London-based newspaper the Financial Times pointed out that "Once the tax-related GDP gyrations are averaged out, the economy experienced virtually zero real growth between mid-2013 and mid-2014."

Hurting the general public even worse has been the continued stagnation of real wages as price increases caused in part by Abe's stimulus policies cancel out hikes in salary. "Despite a slight pick-up in wages in June, a larger increase in prices meant that real incomes were 3.2 percent below what they were a year earlier," according to the Financial Times.

Abenomics used to be the Ice Bucket Challenge of politics. The almost immediate effect of Abe's policies, especially in boosting confidence in Japan's economy and in Abe's own approval ratings, had the world's policymakers trying to learn from (or imitate) the prime minister's "three arrows" of stimulus package, quantitative easing and structural reforms. President Ma Ying-jeou, for example, repackaged his ongoing policies of stable currency rates, free trade promotion and increases in public investment as his "three arrows" last year.

The immediate effects of Abenomics, as well as its current troubles were, however, to a large extent expected before the policies were implemented. Abe's first two arrows, monetary and fiscal stimulus, were shots in the arm designed to generate rapid responses in the market. The increase in consumer prices was also an anticipated effect of Abe's goal of locking inflation rates at 2 percent. The first two arrows are meant to boost Japan's economy in order to ready it for the negative short-to-mid-term impacts of the third arrow of reforms.

Structural reforms, especially the introduction of value-added tax (VAT), are expected to drive down sales. In fact, the worst-than-expected 6.8-percent GDP decline is partly the result of consumers purchasing more in the previous quarter in anticipation of the VAT.

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