Commentary: Abenomics fails to fundamentally address Japan's economic issues

The economic policies advocated by Japanese Prime Minister Shinzo Abe in the past three years, dubbed as "Abenomics," have failed to fundamentally address the thorny issues of the world's third largest economy.

Abe who invited top world experts, including Nobel economics laureates Joseph Stiglitz and Paul Krugman, to Tokyo last week, probably found their advice he had desperately sought could put his Abenomics in a dilemma as both urged him not to raise consumption tax.

In 2014, Japan raised its consumption tax from 5 percent to 8 percent in an attempt to rein in public debt. It was the first tax hike in 17 years. Japan's consumption tax was due to rise to 10 percent from 8 percent in October 2015, but the increase was deferred until April 2017.

It is believed that Abe may use the economists' advice to justify his failure to maintain the tax hike and as an excuse for dissolving the lower house of parliament and calling a snap election.

On the one hand, if Abe calls such an election and delays the tax hike, it means that he admits Abenomics failed to revitalize the Japanese economy. On the other hand, if the election begins, Abe will have to trumpet again that Abenomics is successful.

According to the latest gross domestic product (GDP) data, Japan's economy contracted an annualized 1.4 percent in the last quarter of 2015, which equates to a 0.4 percent fall on an inflation-adjusted basis from the July-September quarter.

Now facing an economy that is keeping its negative growth trend, critics are already questioning Abenomics, which is based upon "three arrows" of monetary easing, fiscal stimulus and structural reforms.

In fact, these "three arrows" are exactly what have been harming the Japanese economy.

First, Japan's monetary easing programs have produced negative consequences.

In April 2013, the Central Bank of Japan (CBJ) unleashed a massive monetary easing program worth 1.4 trillion U.S. dollars to double the country's monetary supply in hopes of increasing inflation of 2 percent within two years.

The central bank enhanced its monetary easing program in October 2014, increasing the nation's monetary base by around 80 trillion yen (around 682 billion U.S. dollars) each year, from a previous 60-70 trillion yen.

In January 2016, the CBJ introduced negative interest rates for the first time.

However, Japan's inflation rate stays at about 0 percent for now, far from reaching its lofty 2 percent goal.

The reckless policies of the Abe government and its central bank have distorted the Japanese stock market, currency market and government bonds market, and even increased the risk of a global currency war.

Second, issuing government bonds without respite has added to the economic woes.

Japan's debt-to-GDP ratio was 236 percent when Abe took office more than three years ago. Now it may have hit 250 percent, according to the International Monetary Fund.

As bond yields became negative, the Japanese government can even earn interests by issuing a great amount of bonds. This could prompt Tokyo to continue to issue bonds and trigger a "Japanese debt crisis" in the future.

Third, reforms have hardly yielded tangible results.

Take unemployment rate and income situation -- two indicators Abe usually mentions -- for instance.

Japan posted an unemployment rate of 3.2 percent in January, the lowest reading in three months, from 3.3 percent logged in December in 2015. However, many workers are struggling as permanent jobs have disappeared and wage growth is limited, far lower than what is needed for reaching the 2-percent inflation rate goal.

A February report from the Japanese Ministry of Internal Affairs showed that household income in Japan had dropped to the level of 30 years ago.

In the recent spring labor talks, wage growth in most Japanese enterprises only reached half of that of last year.

With companies' unwillingness to raise wages and consumption being paralyzed, Abenomics can hardly save Japan's sluggish economy. Endi