Abenomics Flunk Revitalization, Japan Is Going Back To Recession

In almost three years after PM Shinzo Abe launched his monetary, fiscal, and structural revitalization programs, there are still many targets left unreached. The continued failure of Abenomics has analysts worried that Japan may enter another recession period.

When Haruhiko Kuroda took over the leading position in Bank of Japan, he proposed monetary stimulus as the ultimate solution to boost inflation. As a result, although still sluggish, Japan inflation briefly stepped in line with other developed country's inflation rate.

Yet, the monetary, fiscal, and structural revitalization programs from PM Shinzo Abe still leave many goals unreached, despite their implementation for almost three years. The continued failure in Abenomics has some analysts worried that Japan is now on the verge of another recession.

Poor Performance From Investment and Industry

Large corporations may gain big profits, but it doesn't mean they want to invest them for expansion. The following chart from Bloomberg showed Japan's companies preference to pile up their profits rather than reinvest them.

Comparison chart of profits (blue), investment (red), and cash deposits (black) from Japan's corporations

The minimum number of reinvestments generate a lot of problems. It's not a wonder that industrial production has been reported negatively for the last two months. Economic slowdown in China and developing countries also distributed a part in this situation. However, sluggish performance from investment spending and industrial activity in Japan was mainly caused by the structural  problems within the country.

Uneven Welfare

According to the opposition parties, one of Abenomics' negative sides is the monetary and fiscal stimulus that favor the rich. An insight from Japan Times earlier this year revealed that only large companies and capital owners could benefit from the increasing stock price supported by Abenomics. The number of households depending on government's subsidies keep increasing, while the rich's assets values keep rising.

In addition, Asahi Shimbun oftenly writes on how Abenomics support big corporations but ignore small and medium enterprises. Quoting Kenji Eda from Japan Innovation Party, Abe government had failed to take apart the hot mess of Japanese bureaucracy that entangles prospective sectors like agriculture. Optimization on job expansion is also considered a failure as it only creates an escalation on temporary employment, while on the other hand, full-time employment is actually declining.

Aging Population

Another dilemmatic problem comes from the deteriorating number of young and productive population, dropping birth rate, and the growing amount of elder people. The number of births in Japan reached all time low at about 1 million last year when more and more young people postponed their marriage.

The resulting effect is remarkable. While big cities like Tokyo is still bustling, smaller towns start to lose population. It subdues the economic activity, making a considerable number of business closed down since they lack people to continue operating the business.

View in Nagoro village, Shikoku island, Japan, where scarecrows replace human inhabitants after the population drops to only 35 elderly.

Due to various structural problems, domestic demand continues to be stagnant, making it impossible to maintain the price increase reflected in inflation rate. The recent inflation report could be a valid evident as it generally showed Japan economic stagnation. Core CPI even dipped to negative area, recording a -0.1% result which was also the lowest level since 2013.

Request For More Stimulus

After experiencing recession last year due to increase of consumption tax, Japan is now predicted to get into another recession era. JP Morgan cut its forecast for Japan Q3 GDP (annualized) to -1%, making the country's prospect all the more gloomy, especially when the data had already fallen to -1.2% in Q2. It is important to note that reaching the negative zone twice in a row would practically throw Japan economy into a recession.

Looking from this situation, many sides now ask for more monetary and fiscal stimulus. BoJ will have a meeting again this week and at the end of October to decide on their next policy. Analysts expected BoJ to announce their plan regarding with stimulus extention in one of those two moments.

Yes, for now stimulus is indeed urgent. But we should be able to comprehend that it will only manage to buy time, not solving the real problem. As long as structural matters are still left unfinished, Japan's economy will never see the light. It will probably just spin around the 0 level.