Shinzo Abe’s imminent resignation as Japanese prime minister has local markets worried. What will become of his Abenomics monetary and fiscal policy? A more pointed question to ask is what it had done. Abenomics aimed to boost economic activity and end Japan’s deflationary period. There is evidence that during Mr Abe’s last time in office, the longest by any Japanese prime minister, Abenomics did have some positive effects. But it did not boost inflation.
Mr Abe was not the first to try. Korekiyo Takahashi, a former finance minister and prime minister, tackled deflation in the 1930s, years before John Maynard Keynes published his General Theory. Takahashi’s efforts worked. Evidence on Abenomics is at best mixed. Deflation in Japan, as measured by the consumer price index, did abate. From late 1999 until Mr Abe took over (for the second time) as leader in late 2012, prices had declined in most months from the year previous.
Mr Abe made a big show of inflation signalling, with speeches not just in Japan but around the world. He rang the bell at the New York Stock Exchange in 2013 with “Buy my Abenomics”. In the first year of his term, Mr Abe did encourage a massive monetary and fiscal push to its economy, notes Peter Tasker at Arcus Investment.
Yet after that, not enough money seeped into the economy to make a difference on inflation. The downtrend in the 10-year break-even rate reveals this. It has slipped from a peak of 1.39 per cent to barely zero today. Two consumption tax increases effectively negated part of the effort. Since 2013 Japan has targeted inflation to raise it, not push it down as with most of the other 41 countries using them since 1990.
This should make one wonder what the US Federal Reserve’s latest permissive policy on inflation will achieve. Other forces, from the internet’s price disrupting powers to demographics, look too powerful for any central bank to tackle for the foreseeable future. That augurs well for asset inflation — just not for prices.