What are Abenomics and the Three Arrows?

  • Since the Japanese prime minister introduced new economic policies (now commonly known ‘Abenomics’) in Japan, the term for the reform package got so well-known, that media soon started to use it as well.

    What is Abenomics?

    The economic policies introduced by Mr. Abe, or ‘Abenomics’, were used in the general election in December 2012, and were also responsible for his election. But what are these policies exactly?

    The name ‘Abenomics’ simply comes from ‘Abe’ and ‘Economics’, done in a similar approach as been done before by other politic leaders, like Reaganomics and Clintonomics. It is divided into three sections (also called three arrows): fiscal stimulus; monetary easing and structural reforms.

    The three arrows
    • Fiscal stimulus
    • This is an attempt to stimulate the economy with financial help from the government.

    • Monetary easing
    • Done by the central banks, this is another monetary policy in order to stimulate the economy.

    • Structural reforms
    • As simple as it may sound, structural reforms have a much deeper meaning: structural adjustment programmes are loans provided by IMP (the International Monetary Fund) and the World Bank to countries like Japan, who have experienced an economical crisis.

    Again, the main aim is to improve the economy, in the case of Abenomics, that is done especially by encouraging private investments. Fortunately, the policies had immediate effects: right away, in February 2013 the yen got weakened immensely and the Tokyo Stock Price Index rose by 22%. Also, the unemployment rate fell from 4% to 3,75% after only four months.

    The weaker yen makes Japan more attractive for foreign investors and Japanese products abroad more affordable. Another tax hike is planned in 2016 and critics are concerned about the aftermath this might bring to Japan.
    Though there have been positive and negative impacts on economy, it is not yet clear to declare whether Abenomics was truly successful or if it stopped Japan from economic growth.

    However, the country has long been struggling with economic stagnation and Abenomics seem, at least so far, to be a good attempt in fighting it.