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Japan’s Economy: Abenomics from the Front and Rearview Mirrors

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When Kazuo Ueda took the reins as governor of the Bank of Japan (BOJ) in April 2023, he signaled that
he would continue the ultra-loose monetary policy that had characterized Japan’s central bank for over a decade.
The BOJ’s balance sheet (as a share of GDP) had grown to the largest in the world ever since former Prime
Minister Shinzo Abe advanced a platform of expansionary economic reforms starting in 2012. Among the
reforms associated with “Abenomics” was expansionary monetary policy to push GDP to its perceived
potential level. Even though potential GDP was not directly observable, inflation that persistently fell below

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the BOJ’s target rate of 2% (including periods of deflation) indicated that realized GDP had been well below
its potential. The hope had been that Abenomics’ three-pronged approach of expansionary monetary policy,
expansionary fiscal policy, and structural reforms would return the Japanese economy to the strong
performance that had characterized the 1980s.

Given the many confounding factors that drove the macroeconomy, it was difficult to assess accurately the
extent to which Abenomics had achieved its objectives. But Abe’s political party, the Liberal Democrats, had
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retained power since 2012, suggesting broad support for the Abenomics agenda. Ueda was keenly aware of the
popularity of Abenomics, and he was careful to signal that the BOJ’s approach to monetary policy would remain
steady despite the change in leadership.

But in 2023, Ueda faced strikingly different macroeconomic conditions than those of his predecessors,
including inflation above the BOJ’s target (a scenario considered unimaginable just a few years prior). Would
inflationary pressures persist, and if so, was it time to reassess the monetary expansions that, while extraordinary
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at the onset, had become standard operating policy?

Japanese Economy Historical Overview: The Lost Decades?

What some had once described as a miracle economy with over 40 years of strong growth came to a halt
in 1989. While most economies experienced periods of high growth interspersed with low-growth episodes
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(referred to as business cycles), Japan’s economy at the time was unique in that both the high-growth period
prior to the 1980s and the subsequent slowdown were measured in decades rather than years (see Exhibit 1).

Figuring out what caused the Japanese economy to tank meant first understanding how the miracle had
occurred. Determined to rebuild after World War II, the Japanese people labored to build a new economic
foundation from the production of manufactured goods (e.g., cars, parts, electronics). The emerging
manufacturing base was in large part due to high savings rates accompanied by a wise allocation of savings
toward productive investments. Japan had nearly caught up to the rest of the developed economies just as the
global economy was becoming more interconnected. Indeed, productivity in Japan exceeded productivity in
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the United States, both a cause and a reflection of Japan’s strong growth period. At the same time, interest rates

This public-sourced case was prepared by Daniel Murphy, Assistant Professor of Business Administration, and Gerry Yemen, Senior Researcher. Unless
cited, all thoughts attributed to Kazuo Ueda or Haruhiko Kuroda are fictionalized. It was written as a basis for class discussion rather than to illustrate
effective or ineffective handling of an administrative situation. Copyright  2017 by the University of Virginia Darden School Foundation, Charlottesville,
VA. All rights reserved. To order copies, send an email to [email protected]. No part of this publication may be reproduced, stored in a retrieval
system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden
School Foundation. Our goal is to publish materials of the highest quality, so please submit any errata to [email protected].

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were low and the Nikkei index recorded new highs. Japanese corporations and individual investors started
buying up American businesses and iconic real estate properties (e.g., Mobil Corporation’s headquarters and
the Rockefeller Center in New York City, and the Hyatt Regency Hotel in Chicago), and Japan’s economic
dominance abounded. Prices of land, housing, and other assets (i.e., bonds, equities) rose sharply.

Then beginning in 1988, asset price growth (and especially real estate prices around Tokyo) stalled and

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crashed a year later. The discount rate was held at 2.5% until the BOJ increased it three times in 1989 with an
eye to avoid inflation caused by a declining yen and rising import costs (see Exhibits 2 and 3). Before interest
rates could be raised a fourth time (amid rumors that it was going to occur),1 souring sentiment continued to
drag down asset prices. By the end of 1991, land prices across Japan stagnated2 and the Nikkei dropped (see
Exhibit 4), indicating a bursting of the asset bubble. At the same time, labor force participation declined—the
beginning of a downward trend that would last decades (see Exhibit 5).3

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Although the Japanese government instituted policies to address the crisis, the economy ended up in a
prolonged period of low growth that economists worldwide referred to as “the lost decade.” Policymakers
perceived that the economy might be recovering in 1996, and in response the Japanese government enacted
policies to reduce its deficit and debt accumulation (a medium-term fiscal consolidation and restraints on
spending in the following year’s budget).4 Soon after, Japan’s economy returned to a recession, potentially a
result of the decrease in government spending that was required to lower the deficit. By 1998, the BOJ had
instituted near-zero short-term interest rates. Nonetheless deflation ensued—few, if any, at the time saw this
coming.5 Despite Japan’s economy seeming to be recovering again in the mid-2000s, when the global economic
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recession hit in 2007, the Japanese economy was pulled back into a recession. By the time Ueda’s predecessor,
Haruhiko Kuroda, took over at the BOJ in 2013, some analysts had revised the economy’s name to “the lost
20 years.”

Why did growth slow?

Addressing Japan’s slow-growing economy proved difficult. Surprising to most was that between 1992 and
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2007, the Japanese government continued to run budget deficits, which caused debt to rise to larger and larger
shares of GDP (see Exhibit 6). The government spent money on public goods, such as infrastructure, or
subsidies for purchases such as green items like solar panels, trying to jump-start the economy again. Criticism
later surfaced that the bridges, tunnels, roads, and highways that were built were not needed or went unused.6
In addition, Japanese banks continued to provide loans to companies that were later called “zombie” firms.7
These underperforming loans contributed to a sense that Japan’s economy was not directing resources to their
most productive uses. Or could it have been that all the potentially valuable projects were already underway,
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implying a dearth of additional growth opportunities?8

The one related factor on which many economists agreed to varying degrees was the adverse effects of
changes in the Japanese workforce. Instead of a youthful, vibrant, expanding workforce like those that many

1 James Sterngold, “Japan Business Leaders Ambivalent on Election,” New York Times, February 20, 1990,
http://www.nytimes.com/1990/02/20/business/japan-business-leaders-ambivalent-on-election.html?mcubz=0 (accessed Sept. 20, 2017).
2 Yukio Noguchi and James M. Poterba, “Housing Markets in the United States and Japan,” National Bureau of Economic Research, January 1991,

http://papers.nber.org/books/nogu94-2 (accessed Sept. 29, 2017).

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3 http://www.nytimes.com/1990/02/20/business/japan-business-leaders-ambivalent-on-election.html?mcubz=0.
4 Takeo Hoshi and Anil Kashyap, “Why Did Japan Stop Growing?” National Institute for Research Advancement, January 21, 2011,

http://faculty.chicagobooth.edu/anil.kashyap/research/papers/Why_Did_Japan_Stop_Growing.pdf (accessed Sept. 20, 2017).

5 http://faculty.chicagobooth.edu/anil.kashyap/research/papers/Why_Did_Japan_Stop_Growing.pdf.
6 Rupert Wingfield-Hayes, “Japan’s High-Spending Legacy,” BBC News, October 10, 2012, http://www.bbc.com/news/world-asia-19893379

(accessed Sept. 21, 2017); and Paul Krugman, “Japan’s Trap,” https://www.princeton.edu/~pkrugman/japans_trap.pdf (accessed Sept. 21, 2017).
7 These were companies still operating although they were too weak to grow or invest. Some could even be insolvent. Zombie companies were

sometimes kept alive by low interest rates or creditors willing to be patient or lenient.
8 http://faculty.chicagobooth.edu/anil.kashyap/research/papers/Why_Did_Japan_Stop_Growing.pdf.

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rich economies enjoyed, economic growth in Japan was stunted by an aging, dwindling workforce. As people
retired, a lower fraction of the working population was left to produce goods and services. One study suggested
that each 10% increase of the population above 60 years old lowered GDP growth in the United States by 5.5%
per state9—could this be what happened in Japan? (See Exhibit 7 for Japan’s working-age population.)

On the opposite end of the age spectrum, the low birth rate in Japan would further impact future workforce

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growth. Although other countries such as Germany, Italy, or Britain faced similarly low birth rates (as well as
an aging workforce), immigration policies in those countries were implemented to bolster that gap.10 Japan’s
immigration policies were restrictive and contributed little to expanding the labor force.11

Aside from the workforce, another potential culprit for the stagnation of productivity growth was a lack of
transformative innovations. There was an argument to be made that part of the world’s economic growth
periods were because of huge innovations unlikely to be seen again—engines, integrated circuits, the internet,

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and smartphones.12 New advances since then, such as apps, simply did not contribute to productive capacity
to the extent that earlier inventions did. New apps and other technology products did, however, provide
benefits to consumers that were often difficult to measure in part because they were not paid for directly by
consumers. Since there was no economic measurement suitable for determining the impact technological
innovation provided, true value in the economy may have grown faster than indicated by measures of
productivity or GDP growth.13 Indeed, Japan’s cities exhibited some of the most advanced transportation
technology in the world, along with a dizzying array of consumer services. Was it simply the case that national
statistics did not fully capture the growth in technology and services?
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Low aggregate demand was also a potentially related cause for Japan’s ailing economy. Typically, central
banks counteracted reductions in private-sector spending by lowering interest rates, thus stimulating spending
and pushing the economy back toward full employment. Interest rates in Japan, however, were near zero for
much of the 1990s. Japan’s central bank was unwilling or unable to lower interest rates much below zero,
limiting the ability to stimulate demand.14
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Apart from the workforce and government policies, there was blame to share with corporate Japan as
competitiveness declined, particularly in the electronics sector.15 With India and China building momentum,
the once-dominant Japanese firms were falling behind, leading some analysts to suggest the top five high-tech
companies were in jeopardy of going under.16 Unless they reorganized and invested in R&D, the situation would
worsen. “The electronic companies bear a heavy R&D burden as they are required by telecommunication
companies to continuously develop new technology,” one analyst said. “Conversely, it takes longer for
electronic companies to recover their R&D costs.”17 Indeed, Hitachi, which was notable for being one of the
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best technology companies, closed most of its consumer electronics divisions in 2010.

9 Alana Semuels, “Why Economic Growth Is So Lackluster,” Atlantic, October 21, 2016,
https://www.theatlantic.com/business/archive/2016/10/why-economic-growth-is-so-lackluster/504989/ (accessed Sept. 19, 2017).
10 CBS/AP, “Dropping Birth Rates Threaten Global Economic Growth,” MoneyWatch, May 7, 2014, https://www.cbsnews.com/news/dropping-

birth-rates-threaten-global-economic-growth/ (accessed Sept. 25, 2017).

11 https://www.princeton.edu/~pkrugman/japans_trap.pdf.
12 Robert Gordon, “The Turtle’s Progress: Secular Stagnation Meets the Headwinds,” Vox, August 15, 2014, http://voxeu.org/article/turtle-s-
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progress-secular-stagnation-meets-headwinds (accessed Sept. 27, 2017).

13 https://www.theatlantic.com/business/archive/2016/10/why-economic-growth-is-so-lackluster/504989/.
14 https://www.princeton.edu/~pkrugman/japans_trap.pdf.
15 Jonathan Soble, “The Numbers behind Japan’s Sputtering Economy,” New York Times, August 14, 2016,
https://www.nytimes.com/2016/08/15/business/international/weak-external-demand-shaves-japans-gdp-growth.html?mcubz=0 (accessed Sept. 19,
2017).
16 Bolaji Ojo, “Japan Electronics Giants Struggle to Stay on Top,” EET Asia, February 26, 2009,
http://archive.eetasia.com/www.eetasia.com/ART_8800564487_499486_NT_8d3f19a9.HTM (accessed Sept. 25, 2017).
17 http://archive.eetasia.com/www.eetasia.com/ART_8800564487_499486_NT_8d3f19a9.HTM.

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Other economists argued it was unfair to compare Japan’s excessive growth in the 1980s with its
comparatively slow performance in the 1990s, and suggested that a fairer comparison would be between Japan
and other large world economies, such as the United States.18 Some measures, such as Japan’s real GDP per
hour worked, indicated that Japan’s economy was doing better than most gave credit for (see Exhibit 8).

No matter where economists fell on the issue of Japan’s lost decade (or two), the BOJ under Kuroda’s

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leadership would become responsible for implementing policies to spur growth.

Abenomics and Haruhiko Kuroda

When Abe won the election in September 2012 to become prime minister of Japan, the economy was grim.
The country was trying to recover from a major earthquake and tsunami that had hit the year before, resulting
in thousands of deaths and complete devastation that cost billions of US dollars to clean up. In addition, the

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Fukushima Daini nuclear power plant had an energy accident, which caused meltdowns and released radioactive
material from its containment vessels into the environment. While the Japanese were dealing with these
disasters, GDP was declining at an annualized rate of 3.5% over two straight quarters (see Exhibit 9 for
quarterly real GDP). Consumers, wary of their future prospects, avoided purchases, contributing to a prolonged
recession and causing large companies like Panasonic to record major losses.19 The economy had been in
deflation for years (see Exhibit 10 for consumer price index), and now a new prime minister promised recovery.
Policymakers worried that deflation depressed aggregate demand, since lower inflation (higher deflation) was
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associated with higher real interest rates that could incentivize consumers and firms to delay purchases,
contributing to deficient aggregate spending in the economy.

Abe’s rescue plan for Japan’s economy hinged on three prongs that he called “arrows.” The symbolism of
arrows was meaningful for most Japanese as an arrow was part of a storied samurai warlord’s lesson. He showed
his three sons how one arrow could be easily broken apart and how three arrows held together were tough to
break. If economic policy held together the three arrows of change—monetary, fiscal, and structural—the
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economy would recover and thrive.

Among the policy makers Abe nominated to help implement the three arrows was Kuroda to head up the
BOJ. Kuroda would be instrumental in influencing Japan’s monetary policy—one of the three arrow policies
of Abenomics.

The first arrow was to ease monetary policy. The BOJ would offer a monetary stimulus through quantitative
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easing to release money and credit into the market. Under Kuroda’s direction and on Abe’s 100th day in office,
the BOJ announced it would purchase JPY7 trillion (USD59 billion) worth of government bonds a month.20
This would reduce interest rates, leading to increased employment, inflation, and growth. Moreover, the BOJ
would set a 2% inflation target, considerably higher than the prevailing inflation rate at the time.21

The second arrow was an expansionary fiscal policy designed to directly increase spending and
employment. Fiscal policy set the level of government spending and taxation that influenced aggregate demand
in the short term. Aggregate demand was shifted through what households or firms bought (indirectly) or
through what the government purchased in goods and services (directly). In addition to government purchases,
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18 Noah Smith, “Yes, Japan Lost a Decade. So Did U.S.,” Bloomberg, December 16, 2014, https://www.bloomberg.com/view/articles/2014-12-16/yes-

japan-lost-a-decade-so-did-us (accessed Sept. 25, 2017).

19 Leica Kihara and Kaori Kaneko, “Japan Economy Shrinks, Recession Looms,” Reuters, November 11, 2012, https://www.reuters.com/article/us-

japan-economy/japan-economy-shrinks-recesssion-looms-idUSBRE8AB00J20121112 (accessed Sept. 22, 2017).

20 JPY = Japanese yen; USD = US dollars.
21 Heather Stewart, “Japan Aims to Jump-Start Economy with $1.4tn of Quantitative Easing,” Guardian, April 4, 2013,
https://www.theguardian.com/business/2013/apr/04/japan-quantitative-easing-70bn (accessed Sept. 22, 2017).

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taxation was another tool of fiscal policy. A reduction in personal income taxes would give households more
disposable income to spend on goods and services. The resulting rise in consumer spending would potentially
increase employment and income. Higher taxes would have the opposite effect.

Among the initiatives under the second arrow were plans to focus spending on post–quake reconstruction
and disaster prevention, stimulate private investment, promote R&D and innovations, and promote tourism.

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A job creation plan was expected to create roughly 600,000 new jobs.22 The goal was to revitalize industry,
support businesses in global efforts, and develop new domestic markets.23 The new markets would focus on
health care, clean energy, new infrastructure, and local area tourism and attractions.

One of the challenges to implementing these plans was the ballooning level of public debt (Exhibit 11).
Some prominent economists noted that as a consequence, the second arrow was never fired, thus limiting the
potential of Abenomics to achieve its objectives.24 The cyclically adjusted primary balance (Exhibit 12)

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provided some support for this view. However, compared to other advanced economies with similar growth
rates, Japan’s fiscal policy could be viewed as quite expansionary. The United States, for example, lowered
government spending due to debt concerns, while Japan maintained growing government expenditures
following the global financial crisis (Exhibit 13).

The third arrow was structural reforms meant to expand productive powers and boost potential growth.
For example, Abe intended to close loopholes that allowed government officials to award government contracts
to friends or for personal gain rather than through a competitive bidding process. Government contracts
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awarded to efficient firms would increase the quality and lower the cost of public services. Three months into
Kuroda’s appointment to govern the BOJ, Abe laid out more details to restore private-sector confidence in the
economy. This included a unique form of deregulation that targeted something called “bedrock” regulations
around health care, energy, and agriculture.25 For example, before the changes, private-sector involvement in
agriculture was restricted (i.e., the amount of land one entity could own) and the reform would expand private
ownership of agriculture.26 Efforts would also center on reforming companies’ ability to fire workers—
employees traditionally counted on a lifetime employment and were protected from being dismissed. Restoring
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confidence would also include how investors looked at corporations. To that end, codes on corporate
governance would be implemented to address issues such as that over three-fifths of Japan’s leading companies
had no independent directors on their boards.27

In addition to deregulation, there would be special economic zones set up in six designated areas. Within
these zones, “guest workers” from other countries would be allowed (90% of Japanese were against increasing
immigration).28 There would also be a cut to the corporate tax rate, which at the time was 35%, in sharp contrast
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to other Asian economies such as Hong Kong and Singapore where it was 17%.29 Asset allocation in the
government pension investment fund (one of the largest in the world) would also be reconsidered as roughly
60% of the funds went straight into Japanese government bonds, which had the benefit of reducing government
borrowing costs but the downside of low returns on pension assets.30 And arguably one of the most challenging
components of reform was around increasing the labor participation of women in the workforce.

22 Government of Japan, “Emergency Economic Measures for the Revitalization of the Japanese Economy,” January 11, 2013,

http://www5.cao.go.jp/keizai1/2013/130111_emergency_economic_measures.pdf (accessed Sept. 22, 2017).

23 Koji Sakuma, “Abenomics’ Impact on the Global Economy,” Economy, Culture & History, November 1, 2013.

Paul Krugman, “Abenomics and the Single Arrow,” New York Times, August 15, 2016,
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24

https://krugman.blogs.nytimes.com/2016/08/15/abenomics-and-the-single-
arrow/?mtrref=undefined&gwh=3457B17118144C5484A512ECE8F5DFB8&gwt=pay&assetType=opinion (accessed Aug. 1, 2018).
25 For a complete view, see the government of Japan’s website at https://www.japan.go.jp/abenomics/index.html (accessed Sept. 28, 2017).
26 Heizo Takenaka, “Keynote Remarks,” Abenomics’ Progress in Reforming Japan’s Economy conference, Washington, DC, March 26, 2015.
27 “Three-Piece Dream Suit,” Economist, July 30, 2016, https://www.economist.com/news/finance-and-economics/21702756-abenomics-may-have-

failed-live-up-hype-it-has-not-failed-and (accessed Sept. 25, 2017).

28 Takenaka.
29 Takenaka.
30 Takenaka.

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The Abenomic Referendum

Within the first two years of Abe’s administration, he decided to call an early election as a referendum on
his economic policies. His party, the Liberal Democratic Party, won a landslide victory on December 14, 2014.
“I believe the public approved of two years of our ‘Abenomics’ policies,” Abe said. “But that doesn’t mean we
can be complacent.”31 It was clear that there had been some small wins in the economic forecast and Abenomics

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would continue to be top of mind for the Japanese people and those who governed. Kuroda, who led the BOJ
at the time, noted that the economy’s “fundamentals were sound” and inflation had steadily improved.32

The basis for Kuroda’s enthusiasm may have depended on which economic indicators were examined—
for example, throughout 2015, GDP grew by only 0.5%, yet corporate earnings and dividends had increased.
With unemployment decreasing to levels not seen since 1997, increasing numbers of female and foreign
workers,33 and rising nominal wages per employee (base increases for the first time in 20 years), the labor market

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looked brighter.34 And some consumer prices were rising—as exhibited by the first Kagome ketchup price hike
in 25 years—but inflation remained subdued in general.

In January 2016, the BOJ reduced the benchmark interest rate below zero (see Exhibit 14 for yields on
government bonds). The BOJ had developed a framework for the negative interest rate that would minimize
disruptions to financial institutions. “The total of financial institutions’ current account balances at the Bank is
somewhat less than 300 trillion yen, and the tier to which the negative interest rate is applied is about 10 to
30 trillion yen,” Kuroda said. “That is no more than one tenth the present entire balance.”35 The BOJ also
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swamped the marketplace with new money, buying trillions of yen in government debt.36 In June, the proposed
increase of the national sales tax to 10%, already pushed back from implementation in October 2015, was
delayed, again, until 2019.

One year later, Japan’s unemployment rate fell to 2.8%, the lowest it had been since 2007 (see Exhibit 15).
Wage increases among part-time employees were 2.5%, and the ratio of active job openings was the highest
since 1974 at 1.52.37 Car exports and capital goods production were on an upward trend and corporate profits
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were improving. Was Japan poised again to “take over the world”—as some pundits predicted during its boom
in the 1980s?38

On the consumer side, private consumption was up slightly and there were plans in some sectors, such as
delivery transportation, to increase prices. But raising prices was not widespread throughout the economy. For
the most part, as labor costs increased, companies were cutting back workers’ hours rather than raising prices.39
Among consumers, there remained a view that Kuroda called deflation mindset. “After having experienced
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protracted deflation, the mindset and behavior based on the assumption that prices will not increase have been
deeply entrenched among the public,” he said. “It is not easy to dispel this mindset.”40 Japan had a long way to

31 Linda Sieg and Kiyoshi Takenaka, “Abe’s Coalition Secures Big Japan Election Win with Record Low Turnout,” Reuters, December 13, 2014,

http://www.reuters.com/article/us-japan-election/abes-coalition-secures-big-japan-election-win-with-record-low-turnout-idUSKBN0JR0N920141214
(accessed Sept. 25, 2017).
32 Haruhiko Kuroda, “Japan’s Economy and Monetary Policy” (speech at a meeting with business leaders, Osaka, September 28, 2015),

http://www.bis.org/review/r150929c.pdf (accessed Sept. 25, 2017).

33 https://www.economist.com/news/finance-and-economics/21702756-abenomics-may-have-failed-live-up-hype-it-has-not-failed-and.
34 http://www.bis.org/review/r150929c.pdf.
35 Haruhiko Kuroda, “The Battle against Deflation—The Evolution of Monetary Policy and Japan’s Experience” (speech at Columbia University,
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New York, April 13, 2016), http://www.bis.org/review/r160418b.pdf (accessed Sept. 25, 2017).
36 https://www.nytimes.com/2016/08/15/business/international/weak-external-demand-shaves-japans-gdp-growth.html?mcubz=0.
37 Haruhiko Kuroda, “Japan’s Economy and Monetary Policy” (speech at a meeting with business leaders, Osaka, September 25, 2017),

https://www.boj.or.jp/en/announcements/press/koen_2017/data/ko170925a1.pdf (accessed Oct. 13, 2017).

38 Eduardo Porter, “O.K., Japan Isn’t Taking Over the World. But China…,” New York Times, July 3, 2005,
https://www.nytimes.com/2005/07/03/weekinreview/ok-japan-isnt-taking-over-the-world-but-china.html (accessed Feb. 21, 2019).
39 Haruhiko Kuroda, “Outlook for Economic Activity and Prices and Monetary Policy” (speech at the Naigai Josei Chosa Kai [Research Institute of

Japan], Tokyo), May 10, 2017, http://www.bis.org/review/r170510a.pdf (accessed Oct. 13, 2017).
40 http://www.bis.org/review/r170510a.pdf.

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go to achieve stability at 2%. Nor had GDP returned to its pre-2008 trend (Exhibit 9). Yet Kuroda remained
optimistic that inflation and—more importantly—GDP would increase.

Ueda and the Post-Pandemic Economy

Despite policymakers’ optimism, inflation remained below target and GDP growth unexceptional through

rP
the rest of the decade. The onset of the pandemic in 2020 led to declines in output and inflation around the
world, and Japan was no exception. But as the pandemic receded, consumers around the world unleashed their
pent-up demand, leading to a surge in spending.41 The inflationary pressures from high demand were
confounded by global supply issues, including the onset of war in Ukraine. As a consequence, inflation surged—
even in Japan (Exhibit 10).

Many policymakers thought that the drivers of inflation were temporary, and governments around the
world continued expansionary policies in anticipation of future declines in inflation. But by April of 2023,

yo
inflation remained well above target and future trajectory of inflation was anything but clear. Would inflation
soon recede as consumers exhausted their post-pandemic spending binge and supply chain issues were
resolved? Or had the new Japanese economy finally slayed the deflation dragon, only to make way for its high-
inflation counterpart?

It was in this environment that Ueda was responsible for post-Abe monetary policy. Would Ueda continue
his predecessor’s massive monetary support, or would he break with the recent past and chart his own path for
op
monetary policy?
tC
No
Do

41 Alan J. Auerbach, Yuriy Gorodnichenko, and Daniel Murphy, “Inequality, Fiscal Policy and COVID19 Restrictions in a Demand-Determined

Economy” European Economic Review 137 (2021).

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Exhibit 1
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
Growth in Real GDP Per Capita in Japan and the United States (1980–2005)

rP
Japan USA

8.0

6.0

4.0

2.0

yo
0.0

-2.0

-4.0
op
Data source: Federal Reserve economic data, https://fred.stlouisfed.org/graph/?graph_id=411671&rn=1479
(accessed Oct. 19, 2017).

Exhibit 2
tC

Japan’s Economy: Abenomics from the Front and Rearview Mirrors

Monthly Interest Rates, Discount Rate for Japan (1988–91)
No
Do

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Exhibit 3
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
Nominal Effective Exchange Rate 1982–90 (avg. not seasonally adjusted 2010 = 100)
Japan: Nominal Effective Exchange Rate

rP
(Index)
55 55

50 50

45 45

yo
40 40

35 35

30 30
op
25 25
83 84 85 86 87 88 89 90

Source: International Monetary Fund/Haver Analytics

Note: the nominal effective exchange rate (NEER) is the value of a country’s currency against a weighted
average of foreign currencies. A higher NEER indicates appreciation of the domestic currency.
tC

Exhibit 4
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
Nikkei Stock Average

45,000
40,000
No

35,000
30,000
25,000
20,000
15,000
10,000
5,000
Do

Data source: Nikkei Industry Research Institute, “Nikkei Stock Average, Nikkei 225,” retrieved from
FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/graph/?graph_id=411341
(accessed Oct. 5, 2017).

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Exhibit 5
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
Labor Force Participation Rate (percentage of total population ages 15+)

rP
65
64
63
62
61
60

yo
59
58
57
56

Data source: International Labour Organization, ILOSTAT database. Data retrieved in March 2017.
op
Exhibit 6
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
tC

Total Government Debt as Percentage of GDP (1992–2007)

United States Japan Germany

Canada Italy France
180
No

160
140
120
100
80
60
40
Do

20
0

Data source: OECD.Stat, https://stats.oecd.org/index.aspx?queryid=8089# (accessed Oct. 5, 2017).

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Exhibit 7
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
Working-Age Population (1970–2017)

90

rP
85

80
Millions

yo
75

70

65
op
Data source: Organization for Economic Co-operation and Development, “Working Age Population: Aged 15–64: All Persons
for Japan,” retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/LFWA64TTJPM647S,
Japan Consumer Price Index 1960–2016 (%), (accessed Sept. 28, 2017).

Exhibit 8
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
tC

Real GDP per Hour Worked in Japan and the United States, 1997–2011 (in 2011 US dollars).

45 70
40 60
35
50
No

30
40
Japan

25
US

20 30
15
20
10
5 10
0 0
Do

Japan US

Data source: Author calculations and US Bureau of Labor Statistics, “Real GDP per Hour Worked in the United States,” retrieved
from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/USARGDPH; US Bureau of Labor Statistics,
“Real GDP per Hour Worked in Japan,” https://fred.stlouisfed.org/graph/?graph_id=411361 (accessed Oct. 11, 2017).

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Exhibit 9
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
Real GDP (Index, 2010 = 100), 1980–2021

rP
yo
op
Exhibit 10
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
tC

Consumer Price Index Inflation, Japan (1980–2023)

No
Do

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Exhibit 11
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
Net Public Debt, Japan, 2005–15 (as percentage of GDP)

rP
yo
op
Exhibit 12
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
tC

Japan’s General Government Cyclically Adjusted Primary Balance, 2003–17 (as percentage of GDP)
No
Do

Note: The effect of policymakers’ discretionary actions is captured in the cyclically adjusted primary balance (CAPB),
where the term “primary” indicates that the measure excludes interest payments. The CAPB accounts for the fact that
tax revenues tend to fall and transfers tend to increase during recessions. A negative CAPB implies that the government
would be running a deficit if output were growing at a steady rate.

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Exhibit 13
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
Government Expenditures in the United States (seasonally adjusted billions of US dollars) and Japan
(seasonally adjusted billions of Japanese yen), 2007–17

rP
107500 3600

105000
3400

102500
3200

yo
100000

3000
97500

2800
95000

92500 2600
op
07 08 09 10 11 12 13 14 15 16 17

Red dotted line: Japan government consumption, in billions of Japanese yen, seasonally adjusted at annual rate (SAAR).
Blue solid line: US government consumption, in billions of US dollars, SAAR.
Sources: International Monetary Fund, US Department of Commerce Bureau of Economic Analysis, Haver Analytics.
tC

Exhibit 14
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
Japan Yield to Maturity of All Ordinary Government Bonds , 1990–2023
No
Do

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Exhibit 15
Japan’s Economy: Abenomics from the Front and Rearview Mirrors
Unemployment Rate (seasonally adjusted)

rP
yo
op
tC
No
Do

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