Abenomics: The Silver Bullet for Japan's Deflation

The primary causes of Japan's deflation are the reduction of demand in a maturing society, a decline in the middle class, and the overall population decline. Growth requires that you face these factors so that we don't repeat the same mistake.
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Since the end of last year, the economic and fiscal monetary easing policy called "Abenomikusu," or sometimes called "Abenomics," has been in effect. The general expectations for economic recovery and monetary deflation are increasing. In my opinion, because of the concept of "qi" -- or natural expansion and contraction of markets in the economy -- in the short term, there will only be negative economic effects. We do not know whether this negative legacy will remain in the medium- to long-term economic prospects, but we are nevertheless very concerned.

There was a question before the budget committee recently that was posed to Prime Minister Abe. The question asked was: If, as stated, between 2002-2012 we saw the longest-lasting economic recovery, then why do we continue to have widening economic disparity and the average worker's salary continues to fall? The answer was: "In 2006, Monetary Easing Policy was relaxed; now, if you continue to strengthen Monetary Easing Policy will deflation truly be eliminated?" It's a very slippery answer.

If you believe the depreciation of the Yen is a result of the Monetary Easing Policy then the worth of import prices will increase, and prices as a whole will also rise. However, if this cost-push-type inflation model is left alone, it should lead to the improvement of people's lives and thus wages. But instead we see only increased negative factors. Prime Minister Abe also seems to repeatedly recognize that point, "I think it will rise, leading to consumption and investment," the so-called last-minute demand theory.

However, the deflationary trend of the last 20 years is not changed or affected by rising public expectations.

There is an assumption that if you want to buy into last-minute demand theory, then you have to buy purchasing power and buy potential demand. Over the past 20 years, poverty has increased. The middle class layer is being reduced; there is also a declining trend in income of the middle class tier. Moreover, as a result of the high growth and post-war reconstruction, many "goods" are widely distributed to the national public. Even if not the latest model, durable consumer goods are provided in many homes. We have become a society that is increasingly defined by the poor who lack purchasing power for items such as new air-conditioning units and automobiles. For these people, the cost of life essentials such as food and energy are increased as a result of import prices. Purchasing and replacement demand are central. A substantial rise in income expectation must proceed.

I believe the primary causes of Japan's deflation during this period are the reduction of demand in a maturing society, a decline in the middle class and the overall general population decline. Growth requires that you squarely face these factors so you will not be repeating the same mistake.