Abenomics 2.0: Bold Goals, Modest Proposals

Abenomics 2.0: Bold Goals, Modest Proposals

Japan’s Prime Minister Tackles Economic Tradition

JACOB M. SCHLESINGER

Updated June 23, 2014 8:08 a.m. ET

TOKYO—When Japanese Prime Minister Shinzo Abe first announced his growth strategy a year ago, the stock market fell sharply in disappointment. Officials hope for a better response to the revised plan to be unveiled Tuesday.

The difference lies in part on more realism from investors, and less hype from a more low-key Mr. Abe. This isn’t about quick gains, but raising long-run prospects. Will it do that? Many proposals were watered down before final announcement. Abe aides say that raises prospects that something will actually get implemented.

“We made political compromises,” Hiroshige Seko, one of Mr. Abe’s top advisers, told The Wall Street Journal in an interview Monday. “We’re emphasizing execution, even if the plan gets a score of 80, instead of 100.”

Here’s a look at the package, its goals, its challenges, and its prospects.

Prime Minister Abe’s growth strategy is an ambitiously broad blueprint for economic change. The near-final 92-page draft released June 16 details three action plans broken into 10 subcategories and 32 more sub-points, touching on everything from fostering “a society where foreigners can work effectively” to “creating predictable dispute settlement systems.” Here’s a guide to some of the more important ones: why they’re proposed, what they claim to do, and where they fall short.

Why does Japan need a growth strategy? To put it simply: the economy has, by many measures, lost its ability to grow. Since the bursting of the 1980s asset bubble, GDP has, on average, crawled forward at less than 1% a year, down sharply from the 4%-plus annual average of the 1980s. There are fewer workers, and those on the job are getting older. Discouraged by the long slump, companies cut investments in new equipment and factories—and began to open factories offshore instead. Foreign direct investment–a crucial fuel for economic activity in many countries–has been virtually nonexistent in Japan, blocked by extensive formal and informal barriers. A business culture that has come to favor stability over risk and return has damped entrepreneurial behavior that can create new engines for growth.

The drama of Japan’s decline hit home in 2010, when China passed Japan to become the world’s second-largest economy after the U.S. China’s economy is already nearly twice the size of Japan’s.

None of these problems are new, and Prime Minster Abe isn’t the first Japanese leader to try and tackle them. Why should this time work any better? Perhaps because Mr. Abe has more popularity, and political capital than the series of weak, short-lived prime ministers who preceded him–if he chooses to use it.