Abenomics on the ropes: are military exports Japan's last hope?

• Author: Sakai, Yoshihiro

At the end of last year, the Abe Administration triumphed in a general election of members of the House of Representatives. At issue were the policies of Abenomics--raising the consumption tax again, extending its period for a year and half from October, and giving priority to an exit from deflation and toward reflation.

Abenomics is comprised of three arrows, but in actuality only two of the three have been shot. The first arrow was quantitative and qualitative easing, which resulted in a 50 percent depreciation of the yen on the market and an expansion in earnings for export-oriented companies. But although the Nikkei Stock Average value has more than doubled, Japan's GDP has been lower than the previous year as of the second quarter of 2014. The downward trend of the price of oil has been good for pushing down the cost of energy, but it has also had a negative impact on exiting from deflation. The Bank of Japan has lowered its consumer price index forecast for 2015 from a 1.7 percent increase to a 1 percent increase. Given the present financial conditions in Japan, the second arrow--public works--is problematic in that it is unlikely that large-scale economic stimulation measures may be sustained.

The third arrow--structural reform--is meant to surmount this situation and enhance the continued growth of the Japanese economy. Following the House of Representatives election, the Abe Administration announced anew the three pillars of its structural reforms, namely reforms of bedrock regulations for agriculture, employment, medical care, energy, and the like; reforms for the business environment, such as reducing corporate taxes; and reforms of employment practices, such as hiring women and foreigners. Assuming the usual winding course of the system reforms process in Japan, however, it will take at least two years for any economic effects to appear. Based on the failure of past reforms, it is also unknown if Japan can accomplish these on its own. The consumption tax increase extension expires in April 2017, which may be too early to confirm an expansion of the economy.

These three could be fairly well achieved through the proposed Trans-Pacific Partnership, as could Prime Minister Abe's aim to reinvent Japan as "the easiest country in the world for companies to start doing business." The TPP might even push Japan to privatize its own state entities, a structural reform that former Prime Minister Junichiro Koizumi was not able to accomplish...