Spotlight: Abenomics untrustworthy, useless in saving Japan's sluggish economy

Abenomics, the economic policies advocated by Japanese Prime Minister Shinzo Abe since December 2012, has proved to be untrustworthy and ineffective in saving Japan's sluggish economy.

In the past three-plus years, Abenomics has not only failed to revitalize the Japanese economy, but also brought social problems such as the fall of the middle class and a greater gap between the rich and the poor. It also increased the risks of a debt crisis that would worsen the Asian and the world economy.

DIFFERENCE BETWEEN IDEAL, REALITY

Abenomics, which is based upon the "three arrows" of monetary easing, fiscal stimulus and structural reforms, has turned out to be ineffective.

Ideally, according to Abenomics, the monetary easing programs will lead to the devaluation of the yen and a rising stock market, which will help increase the profits of enterprises. Then, enterprises will raise the salaries of their employees while expanding the scale of employment and operation, which will stimulate consumption, fuel domestic demand and pull the economy out of a long-term downturn.

But in reality, due to the lack of confidence in the economy, Japanese companies still keep reducing their cost of production by hiring a great number of temporary workers with lower salaries and benefits instead of regular workers. This has led to a bearish job market, in which it is difficult to stimulate consumption.

Meanwhile, the change in both domestic and overseas environments has resulted in the continuous appreciation of the yen and a nose dive of the stock market, a situation unexpected by the Abe government.

On fiscal policies, Japan raised its consumption tax in 2014 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.

Abe said Wednesday that he would further delay an already controversial planned tax hike from April 2017 to October 2019.

Speaking at a televised press conference, the Japanese leader said the delay was "essential to support not just Japanese growth, but global growth" and some of his decisions on the contentious issue were made following the outcome of the Group of Seven leaders' summit he hosted last week.

If the economy fails to improve, raising the consumption tax will only suppress individual consumption and give rise to deflation. This is why the Japanese government keeps delaying the tax hike.

A Deutsche Welle commentary said Japan's fiscal policies have only resulted in an increase in government debts since Abenomics was applied.

Furthermore, the "third arrow" of structural reforms produced little effect in economic restructuring, as some big companies, despite the improvement in operation, are unwilling to invest, while the pressures on many small- and medium-sized enterprises (SMEs) have clearly not been relieved.

A paper product company in Shimane Prefecture, located in the western Chugoku region of the main Japanese island of Honshu, gave a low mark of 30 points out of 100 to Abenomics. Its director said Abenomics "had no relations" with SMEs and the local economy and is doing nothing to really support the Japanese economy.

In September 2015, the Abe government, after its reelection, put forward "three new arrows" -- developing the economy, improving social security and supporting child development, but the policies lack specific support.

Analysts say that problems such as the aging population and the low birth rate are closely related to social psychology and can hardly be changed by simple economic policies.

FALL OF MIDDLE CLASS

The Japanese economy has been long facing such structural problems as a reduced labor force, an expanding gap between the rich and the poor and low domestic demand.

However, Abenomics, due to its great defects in policy designing and implementation, has not resolved but worsened the problems.

For instance, an increasing number of people who used to belong to the middle class are becoming part of the low-income population.

Official data showed that the population living in poverty was around 11.39 million in 2014, which increased by 42 percent from the year 1999.

The number of poor people increased by about 500,000 in only two years after Abe took office in late 2012.

A poll conducted by the Kobe Shimbun, a media outlet based in Kobe, Japan, in late 2014 among 100 voters in Hyogo Prefecture, showed that more than half of the interviewees were dissatisfied with Abenomics for reasons such as "an expanding gap between the rich and the poor," "no increase in wages and revenues," and "worsening family economic situations."

SPILLOVER RISKS FOR WORLD ECONOMY

"The occurrence probability of a debt crisis in the Japanese government is higher than that of the Fukushima nuclear power plant accident, which is a risk factor of the Asian and even the global economy," said Zhang Shuying, a researcher with the Institute of Japanese Studies at the Chinese Academy of Social Sciences, adding that it was closedly linked to Abenomics.

Under Abenomics, the Japanese government has spared no effort to increase fiscal spending to stimulate the economy, leading to a rocketing debt-to-GDP ratio. Tokyo has also delayed raising the consumption tax, an important resource of government revenues, which makes it difficult for the government to make ends meet, sparking concerns over a Japanese debt crisis.

Japan's debt-to-GDP ratio was less than 90 percent in 1991 and increased to 236 percent when Abe took office more than three years ago. Now it may have hit 250 percent and possibly will continue to climb, according to the International Monetary Fund.

What is worse, natural disasters have also placed an extra burden on the already overburdened public finances. The strong earthquake shaking Kyushu in April has recently forced Abe's government to set aside a supplementary budget tantamount to 7.15 billion U.S. dollars for reconstruction in the disaster-hit area.

Japan's governmental finances are in the worst situation ever, which not only heralds an impeding financial cliff but also threatens the stability of the international financial market as well as the growth of the global economy.

Meanwhile, factories grappling to recover from the earthquakes were knocked by a sharp contraction in external demand, with the Markit/Nikkei Japan PMI falling to 47.7 in May on a seasonally adjusted basis -- the fastest contraction in almost 40 months -- from 48.2 in April.

The growing balance sheet size of Japan's central bank and the declining PMI is forging a "death cross," some media have commented. Endi