Shinzo Abe’s underappreciated recovery
Believe it or not, Japan’s economy is now growing faster than that of the United States, the euro area and the United Kingdom. Last month, data published for Japanese gross domestic product (GDP) growth in the second quarter showed the economy expanded at a real annualized rate of 4 percent.
One must be careful about reading too much into a single number, especially because GDP figures are notoriously volatile. Nevertheless, the overall picture of a rather strong recovery – perhaps even a boom by some standards – is clear.
It is hard to avoid the conclusion that Prime Minister Shinzo Abe has made good on his promise to extricate Japan from the deflationary, low-growth trap it had been caught in for decades. Abenomics, as the prime minister’s economic policies have been dubbed by the media, is working.
We are now seeing the end of deflation and what appears to be a sustained pickup in economic growth.
Saved by women
How did this happen? Put simply, two factors have helped pull Japan out of its low-growth trap in recent years.
First, women are increasingly entering the labor market. What is interesting is that this is not a rerun of the Nordic countries in the 1970s and 1980s, when young women were the new entrants. This time it is rather middle-aged women who are finding jobs.
When Mr. Abe became prime minister in 2012, the participation rate of 55-to-64-year-old women in the workplace was 55 percent. Today, that number has grown to 65 percent. This is the driving force that ended the negative demographic trend we have observed in the Japanese labor market for nearly three decades, and this is what is lifting growth.
Several forces have produced this marked shift. One has been a significant easing of monetary policy over these years, which has spurred a sharp rise in the demand for labor.
The economy is moving decisively away from deflation, allowing ordinary Japanese to regain faith in their future
Indeed, one can argue that monetary policy has been an essential ingredient of Mr. Abe’s economic success. One could even argue that Abenomics could more appropriately be called “Kurodanomics,” after central bank chief Haruhiko Kuroda. Mr. Kuroda was appointed by the prime minister in 2013 with an explicit brief to get Japan out of deflation. He has accomplished this mission – at least partially.
Among Mr. Kuroda’s key steps was to set a 2 percent inflation target and begin aggressive buying of government bonds – so-called quantitative easing. Japan has still not returned to 2 percent inflation, but consumer price growth is approaching that level, and it appears the economy is moving decisively away from deflation.
This has allowed ordinary Japanese to regain faith in their future. Economic growth has taken off – and with it, the demand for labor. In fact, the Japanese economy now has more unfilled jobs than applicants. This is what attracts women – and especially women over 50 – back into the labor market.
Shinzo Abe may have his political problems, but his economic policy has been a gratifying success. Perhaps he should write a nice thank-you note to Mr. Kuroda and Japan’s middle-aged women.