In December 2012, Shinzo Abe was returned to power in Japan, pledging to revive his country’s economy after a long period of stagnation. Nearly two years on, the Japanese prime minister’s ambitious mix of economic policies – often dubbed “Abenomics” – is mired in difficulty.
Mr Abe’s strategy to shake up Japan has three broad components – or three “arrows” as he puts it, using the language of a Japanese folktale. Within weeks of coming to office, he implemented a huge fiscal stimulus to the economy. This was followed by a massive dose of quantitative easing, aimed at dragging Japan out of its deflationary spiral. Earlier this year, Mr Abe spelt out details of his third “arrow” – a wide-ranging package of structural reforms aimed at boosting the country’s long-term growth rate.
A particularly alarming set of gross domestic product data has now raised concern that “Abenomics” is stalling. The data show Japan’s economy shrinking by 6.8 per cent on an annualised basis, the worst economic contraction seen since the earthquake and tsunami that battered the north-east of the country more than three years ago. This is a far more serious decline than economists were predicting back in the spring.