Does the Rich Get Richer and the Poor Get Poorer from Abenomics?

Mr. Abe

The Prime Minister Abe explaining his three arrows of the economic policy, Abenomics

three arrows

During a past few months, Japan has been experiencing the huge changes in the market price and great depreciation of yen.

Abenomics is undoubtedly the hottest controversial topic over the Japanese economy. While people who actually get the benefit and feel that Japan starts recovering its economy support his policy, there are also people who do not get any gain and criticize his policy. Even so, the new reform has been showing its positive effect at least in the increased revenue of major Japanese corporations such as Toyota, and both domestic and foreign economists gave the positive future prospects on Japanese economy. However, last week, it was announced that GDP during the third quarter of this year was unexpectedly shrank by 1.6%. Since it was far behind from the expected GDP growth, Abenomics is called into a big question again. Then finally, the Prime Minister Abe announced that he will dissolve the lower house of parliament and will have the election in a month to ask people whether they still agree with his policy and  the decision about the postponing of the second stage of tax reform.

Japan is facing the time to give a decision on Abenomics.

The biggest controversial point is that Abenomics makes the gap between the rich and the poor bigger so that the rich people tend to support the reform while the poor do not. Is this true? And if it is true then should Japan stop continuing Abenomics reform?

I think it is true that the rich people likely to get the direct benefit and the poor still haven’t got the direct gain from Abenomics. For example, Toyota, the biggest Japanese automobile firm has announced that the revenue for this year will record the biggest-ever launch because of the growth in export. However, at the same time, many of the subcontract factories of Toyota are having difficult moment since the import material cost is increasing as yen becomes weaker. In addition, the increase in the consumption tax, one of the main reforms of Abenomics, usually is a heavier burden to the people whose income is lower. From these points, it might be true that Abenomics has unequally benefitted to the rich and the poor at this point.

Nevertheless, personally, even it makes smaller effect on some people and the great depreciation of yen makes my life in the States much more expensive, I still believe that the recovery of Japanese corporations is the big and important first step to get out of the Japanese lost decades.

Japan has been struggling in the deflationary spiral for decades. Since people expect the deflation, the consumption falls. Because the consumption falls, the revenue of companies falls so the people’s income drops. In order to get out of this bad spiral, the company needs to recover first and then wage will increase so the income level will increase. Then people will start using more money. I think Japan is right now at the first stage where the company begins to perform better. So they next need to raise the wage. Mr. Abe just had a meeting with the Japan Federation of Economic Organizations and asked them to agree with the increase in the wage from the next spring and it is expected that they will sign the consensus document before the end of the year. The consensus also will include some structural reforms such as lowering the corporate tax and easing of regulations. The government hopes this will stimulate the consumption to increase.

As discussed in class, Japan also has many problems in the long term such as the lack of labor force, nuclear plant, or education, and the third arrow of Abenomics does not show the specific action to each problem. However, I think that at least the reform helps Japanese economy to get out of the long recession gradually, and many people are still expecting the positive result from Abenomics.

The next month election will reveal the people’s evaluation on Abenomics up to this point.

deflationary spiral

http://online.wsj.com/articles/abe-dissolves-japans-lower-house-1416543277?mg=id-wsj

http://www.japantimes.co.jp/opinion/2014/11/18/editorials/economic-downturn-continues/#.VHIMN_mG_pU

http://www.ft.com/intl/cms/s/0/d9a4b26e-6e2a-11e4-bffb-00144feabdc0.html#axzz3JpPDAXvS

http://online.wsj.com/articles/could-this-be-the-end-of-reform-in-japan-1416331548?KEYWORDS=japan+abe

http://www.japantimes.co.jp/news/2014/11/22/business/economy-business/rich-get-richer-poor-poorer-mixed-results-abenomics/#.VHIIvvmG_pU

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