Naoyuki Yoshino, dean of the Asian Development Bank Institute, discussed the three arrows of Japanese Prime Minister Shinzo Abe’s economic policy and looked at the country’s revised growth strategy in yesterday’s Center for East Asia Policy Studies event about Abenomics and its impact on the Japanese and regional economy.
Yoshino defined the first arrow as “aggressive monetary policy … that set up a 2 percent inflation target” which he said was different from previous monetary policy directions. Discussing the second arrow, fiscal consolidation, Yoshino explained that Japan has the highest debt to GDP ratio in the world. He explained, however, that monetary policies alone could not solve many of the issues in the Japanese economy such as that of Japan’s aging population, which he called Japan’s “biggest problem.” Watch:
Yoshino then turned to the “third arrow which includes structural changes [in the] Japanese economy,” elaborating upon the necessity of and challenges facing structural reform in Japan. Among these, Yoshino described the aging population and enumerated various structural reforms necessary to combat them. His suggestions included further integration of women into the workforce and “development in robots can compensate for the old [age] participation in the labor market.” In addressing the structural component of growth strategy, Yoshino also stressed the importance of hometown investment trust funds in financing small business owners, the agriculture sector, and small and medium enterprises (SMEs). The growth of SMEs has prompted a movement to reduce information asymmetry by collecting data and generating “econometric models to predict risk.”
Eswar Prasad, senior fellow and New Century Chair in International Trade and Economics at Brookings, responding to Yoshino’s discussion, asked if Prime Minister Abe’s policies could be too delayed. He said that in many ways, the “Lost Decade is a result of policies that were behind the curve,” and wondered whether the difficulties in implementation of Abe’s third arrow could render the attempted structural reform “too late.” Prasad called the three arrows an “ambitious set of policies,” as “Japan had reached a stage in its growth where you could not work with just one set of policies.” He pointed out the difficulty of “structural policies which invariably require a lot of political capital,” explaining that:
There was a realization that unless Japan put in place forceful structural policies, the economy wasn’t going to get moving. And finally we seem to be seeing the third arrow from the quiver being unleashed, but how much force it’s going to be unleashed with, how much there is going to be pressure behind that arrow if there is pushback from the other side, remains to be seen. So as with much else, I am cautiously optimistic but still somewhat worried.
The big question, Prasad said, is “whether Mr. Abe will really do whatever it takes.” Watch:
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The event was moderated by Mireya Solís, senior fellow and Philip Knight Chair in Japan Studies at Bookings. Solis introduced the topic by explaining that it is the “growth strategy, the third arrow [of Abe’s economic policy], the structural reform that is really the critical component which will determine whether this economic revitalization strategy succeeds or not.” Solis further explained:
Last year when the Japanese government released the first version [of its economic policy], there was a lot of skepticism as to whether the government could really undertake this broad range of structural reforms and really confront so many vested interests. So I think the question that we have upon us today is to really examine what has been put on the table in the second version: Can the government of Japan now offer an attractive program for undertaking these economic revitalization reforms?
It [improving Tokyo-Seoul ties] fits the Biden administration’s desire to advance integrated deterrence—the idea that the U.S. and its allies will use all tools and means to deter aggression across different theaters of conflict.