(Bloomberg) — The almost 8-year era of Abenomics draws to a close with Japan’s economy right back at square one.
Prices are flat lining and the deflationary mindset seems as entrenched as ever. Many of the women who entered the labor market under Prime Minister Shinzo Abe’s tenure are losing jobs as Covid-19 batters the economy. Households and companies are in saving mode again amid the pandemic, forcing the government to borrow heavily to cushion demand.
It wasn’t meant to end this way. Abe, who announced on Friday afternoon in Tokyo he would step down due to health problems once his ruling party decides on a successor, came to office with grand plans to snap Japan out of its two decades of stagnation. What would become known as Abenomics relied on “three arrows”: monetary easing, fiscal policy and regulatory reforms.
There were quick successes. Newly-appointed Bank of Japan Governor Haruhiko Kuroda, hand-picked by Abe, pleased markets with ultra-low interest rates and bond-buying that drove a rally in stocks and sent the yen lower, boosting exporters. Inflation even started to perk up and officials were able to declare Japan had clawed its way out of the deflation that had plagued its economy for so many years.
Japan’s Longest-Serving Premier Abe Resigns Due to Health
As companies reported record earnings, Abe repeatedly urged them to raise wages so that workers would be more willing to spend. While pay did rise, it was never quickly enough to spur the sustained pick up in spending that was needed to drive inflation securely to the BOJ’s 2% target.
Also at Abe’s urging, the female labor participation rate steadily climbed, reaching a record high. That’s helped the economy continue to expand, albeit at a modest pace, despite Japan’s aging workforce. Tourism boomed, helped by a weaker yen and regulatory changes. The Tokyo Olympics, which were to have been this summer, fueled investment and were meant to be a highpoint for the nation’s economy.
Kathy Matsui, vice chair of Goldman Sachs Japan, who has long advocated a shakeup of Japanese society to better harness women in the workforce, said Abenomics will be remembered for, on balance, growing the economy, creating jobs and keeping deflation at bay. “The question going forward is will the next successor be able to tackle the remaining reform agenda items, and will the successor be able to bring Japan once and for all out of deflation,” she said.
The clear wins of Abenomics end there.
Even before this year’s massive rescue package worth about 40% of GDP, the budget remained deeply in the red, despite the fact that Abe raised the sales tax in 2014 and 2019. Regulatory reforms to cut red tape failed to really overhaul the system or initiate enough innovation to notably boost productivity. One example: aged administrative systems delayed the distribution of payments to households in recent months, weighing on recovery prospects.
The impact of monetary easing also weakened as the years rolled on, with a turning point being the BOJ’s introduction of a negative interest rate in 2016. That led to concerns that the policy was weighing on the profitability of financial institutions — particularly small rural lenders.
Abe’s second sales tax hike in October 2019 turned out to be spectacularly ill-timed. First, major typhoons hit the economy. Then, the coronavirus put everything into tailspin. The BOJ has had to shift its focus from trying to revive inflation to throwing lifelines to businesses with new lending programs and yet more asset purchases.
The upshot: domestic demand continues to rely heavily on government spending and the prospect of a robust expansion that can generate a sustained acceleration in inflation appears distant — just like it did before the start of Abenomics. And after the Covid-induced second quarter slump, the economy has shrunk back to its size after the 2011 tsunami and nuclear disaster.
What Bloomberg’s Economist Says
“In the short term, we don’t anticipate any significant changes in macro policy. The Bank of Japan, under Governor Haruhiko Kuroda, is set on supporting Japan Inc. during the pandemic and has a flexible policy framework in place under which it can scale stimulus as needed. Fiscal policy is basically set for now with massive stimulus packages in place.”
— Yuki Masujima, economist
Click here to read more.
“Every time the global economy takes a turn for the worst, Japan gets dragged down by it,” HSBC Holdings Plc global chief economist Janet Henry told Bloomberg Television. “As much as I think the history books will treat him well in terms of trying to deliver some transformational changes, it shows what happens in an economy that can still be quite export dependent and still has a number of domestic challenges.”
It’s unclear what comes after Abenomics. But economists don’t see any imminent change in the direction of monetary policy, since Kuroda’s term doesn’t end till April 2023. The bank will continue with its current monetary easing despite Abe’s resignation, people familiar with the matter said. Still, stocks fell earlier Friday as news of Abe’s resignation began to emerge.
In his press conference Friday, Abe acknowledged that the pandemic has had a “major economic impact,” but said his government has managed to contain the damage relatively well compared with other developed nations. As to his legacy, “it’ll be decided by the people and by history,” Abe said.
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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
