Still wallowing in the shallows: the ongoing failure of abenomics.

• Author: Ezrati, Milton

Japanese Prime Minister Shinzo Abe has politicked exquisitely. He has done public relations even better. It is with economic policy that he has fallen short. His Abenomics, as he calls his program, has simply failed to lift Japan's economy from the shallows in which it has wallowed for more than twenty years now. That is hardly surprising. Despite all the fanfare, little that he has implemented is new, while he has neglected the one novel and promising aspect of his agenda: structural reform. Until he (or someone else) takes this fundamental aspect of policy seriously enough to actually do something, Japan's economic prospects will remain mediocre.

ABE'S INITIAL SPLASH

Since Abe first took office in 2013, he has touted his supposedly novel plan to revitalize the economy. His agenda consists of three initiatives, or "arrows" as he calls them. One is a massive government stimulus program, mostly on new infrastructure amounting to as much as 3.5 percent of Japan's GDP. The second "arrow" consists of extremely easy monetary policies, including an increase in the Bank of Japan's inflation target from 1.0 percent to 2.0 percent and a large injection of liquidity into the system through a quantitative easing that would, the government claims, expand the central bank's balance sheet by 1.0 percent of GDP in the first year. The third "arrow" would aim at structural reforms to make Japan's economy more dynamic and growth-oriented, including efforts to streamline energy, environmental, and healthcare regulation and take steps to cope with the rising average age of the population and the resulting overhang of dependent retirees.

Abe has only ever loosed his first two arrows. For a while, these seemed to be sufficient. Japan's financial markets responded well, as did its economy. The country's real GDP expanded at a 3.7 percent annual rate during 2013's first three quarters, a major turnabout from the half percent decline recorded in 2012. It fell modestly in 2013's fourth quarter but jumped again at an impressive 6.6 percent annualized rate in 2014's first quarter. By that time, it appeared as though Abenomics was working, even with its third arrow still in the prime minister's quiver. But then the skein of good news began to unravel. The economy fell a hard 7.4 percent at an annualized rate in the spring quarter of last year, and continued to decline at a less precipitous but still severe 2.0 percent annualized rate during the summer quarter...