Even After Abe's Departure, 'Abenomics' Continues in Japan

Continued Expansionary Fiscal and Monetary Policies Amid COVID-19 Crisis
Abenomics Personnel Likely to Remain
Policy Uncertainty Persists After 8 Years of Premiership
Structural Reforms Still an Unresolved Challenge

[Asia Economy Reporter Naju-seok] Although Japanese Prime Minister Shinzo Abe is resigning, there is growing speculation that Japan's economic policy stance, represented by "Abenomics," will continue in a "2.0" version. It is said that regardless of who becomes the successor, significant changes in policy are unlikely. Following the news of Prime Minister Abe's resignation, the Japanese stock market, which opened for the first time on the 31st, started with a rise of more than 1%.

Prime Minister Abe wearing a mask [Image source=AP Yonhap News]

On that day, foreign media including Japanese outlets predicted that "although the architect of Abenomics suddenly left, the framework of Abenomics will survive," expecting little change in the policy stance.

Abenomics is a large-scale economic stimulus policy based on expansionary fiscal policy. Introduced with the launch of the Abe administration in 2012, Abenomics attracted attention by increasing foreign direct investment and boosting the stock market. The coincidental depreciation of the yen further highlighted the achievements of Abenomics. However, the dominant assessment is that economic performance has significantly declined due to the consumption tax increase and the COVID-19 pandemic.

The view that the Abenomics stance will continue is paradoxically influenced greatly by the COVID-19 crisis. The biggest reason is that it is difficult for the Japanese government to change the existing policy framework amid the global economic downturn caused by the COVID-19 crisis.

Public support for Abenomics in Japan is also high. According to a public opinion poll by Nihon Keizai, economic policy (38%) ranked second after COVID-19 measures (44%) as the policy that the next cabinet should inherit from the Abe cabinet.

Even looking at the candidates for the next prime minister, it is not easy to change Abenomics. In the case of Chief Cabinet Secretary Yoshihide Suga, who has rapidly emerged as a leading candidate, policy continuity is the biggest reason for the "endorsement theory." If Suga, who has weak support within the party and only moderate backing from centrists, is elected as the next prime minister, it would be entirely thanks to Abe's support. The Asahi Shimbun quoted a Liberal Democratic Party executive as saying, "Suga is the right person for policy continuity." For this reason, there is a forecast that it will be difficult to shake the economic policy framework set by Prime Minister Abe. Suga is known to have told those around him, "I want to properly handle COVID-19 and economic-related measures."

Bloomberg News predicted that despite Abe's resignation, the Bank of Japan (BOJ) will not significantly change its monetary policy. The expansionary monetary policy stance was the main pillar of Abenomics, and it is unlikely to change unless BOJ Governor Haruhiko Kuroda suddenly resigns. Masamichi Adachi, chief economist at UBS Securities, said, "Japan's monetary policy is unlikely to change in the short term." Masaki Kuwahara, an economist at Nomura Securities, said, "At present, recovering from the COVID-19 recession is the top priority for everyone," adding, "If the Bank of Japan suddenly normalizes monetary policy, it would rather shock the market."

However, the absence of political power to guarantee policy continuity after Abe's departure is a new variable. Despite the cabinet responsibility system, the Abe cabinet maintained power for eight years and sustained policies, but subsequent prime ministers may frequently have short terms again as in the past. Each time the prime minister changes, the policy stance may shift or the direction may be questioned again. Tai Hui, chief Asia strategist at JP Morgan, noted, "It should be noted that none of the next candidates from the ruling Liberal Democratic Party oppose Abenomics."

Structural reforms, which have seen no progress, remain a task to be solved. Issues such as the productivity revolution, overcoming low birthrate and aging population, and chronic fiscal deficits, which Abe emphasized, have not improved. By postponing these medium- to long-term challenges, Abe has left a heavier burden for the next government.

Meanwhile, Abe personally informed U.S. President Donald Trump of his resignation during a phone call on the same day. Jiji Press explained that Abe appeared to convey to President Trump that the importance of the U.S.-Japan alliance would remain unchanged despite the change in administration. The phone call between the two leaders was the first in over three months since May 8.

This content was produced with the assistance of AI translation services.