by Xinhua Writer Liu Tian, Jon Day
BEIJING, Dec. 14 (Xinhua) -- Sunday's general election in Japan is widely seen as a referendum for Prime Minister Shinzo Abe's economic policies dubbed "Abenomics," and Abe himself is also seeking a new mandate for the economic policy package through the poll.
The prime minister ambitiously launched the "three arrows" of his economic policy mix last year -- aggressive monetary easing, fiscal stimulus and growth strategy -- to beat prolonged deflation and revitalize the economy.
However, these measures have, to varying degrees, failed to hit their targets.
ECONOMIC PERFORMANCES BEAT ABE'S PURPOSES
The latest government data showed the world's third largest economy declined for an annualized 1.9 percent from July to September, far worse than expected.
The heavy contraction, coupled with a 7.3-percent plunge in the second quarter of this year, dragged Japan into another technical recession.
Even worse, Moody's Investors Service Inc. downgraded Japan's sovereign bonds last week to A1 from Aa3, citing "rising uncertainty" over the nation's debt situation and Abe's staggering efforts to revitalize the sluggish economy.
A week later on Tuesday, Fitch Ratings also placed Japan's sovereign credit on Rating Watch Negative, and said it was mulling a similar downgrade.
"I don't think 'Abenomics' is the remedy to the Japanese economy. On the contrary, it has damaged the Japanese economy," said Yukio Noguchi, an economist and adviser to Waseda University's Institute of Financial Studies.
"It is quite clear if you look at the recent GDP statistics, in which our real GDP has dropped, compared to the previous quarter," he told Xinhua in an interview.
The professor said Abe's aggressive monetary easing, as the main goal to jump-start the market, "has no effect on the economy and it just invited the cheapening of the yen and increased consumer prices," which forced consumers to reduce their real expenditures.
The shrinking consumption "will suppress the real economic growth rate," he added.
With rising consumer prices and the effect of April's sales tax hike, private consumption, accounting for about 60 percent of Japan's economy, is weaker than the market expected.
Economy Minister Akira Amari admitted last month that stagnant private consumption was a major factor contributing to the sluggish economic growth in the third quarter.
While at a press gathering Tuesday, Paul Sheard, chief global economist at the U.S. rating agency Standard & Poor's, urged Japan to pursue the goal of defeating prolonged deflation to restore its precarious fiscal health.
"The first step toward (Japan's) fiscal consolidation has to be ending deflation," Sheard said, adding "mild inflation is a much better situation for achieving fiscal consolidation than mild deflation."
For his part, Noguchi explained that Abe's steps to achieve inflation have only resulted in falling consumption and the trend runs contrary to what the government is pursuing.
He added that the 2-percent inflation goal is difficult to achieve as the current price of crude oil, another important factor affecting consumer prices besides the exchange rate, is declining and will impact the consumer price index.
DOUBLE-EDGE ROLE OF WEAKER YEN
Noguchi pointed out that the Bank of Japan (BOJ) has no way to exit from its massive monetary easing policy, referring to the surprising increase of the central bank's asset purchasing program in October, since the central bank has already purchased a huge amount of government bonds.
"If it stops this easing process, the market interest rate will rise, which means their (government bonds) value will go down. It will be a huge loss for the BOJ," he said.
He explained that "the cheaper yen has increased the profit outlooks of exporting companies, and therefore has increased their stock price. So this is good news for the wealthy people and institutions who hold shares in those companies."
But the result of this is changing the social dynamic, in which as many as rich people will become richer while the income of the working class will drop, he added.
"For ordinary Japanese people, the most serious problem is that now the holding of yen assets has become a very risky undertaking. It's a tragedy for Japanese people that holding their own currency as an asset has become a risk," he added.
Government data showed that inflation-adjusted wages for workers in Japan dropped 2.8 percent in October, marking the 16th consecutive month of decline.
Although nominal wages have increased for eight months in a row, the growth was outpaced by inflation triggered by the sales tax hike and the devaluation of the yen by the BOJ.
ADDRESSING STRUCTURAL WOE IN DIFFICULTY
Noguchi criticized that the fiscal stimulus, the second arrow of "Abenomics," only had a temporary effect in 2013.
He said the third arrow, aimed at structural reform but "with no content at all," was "the most serious problem of 'Abenomics.'
He concluded that "Abenomics" has been "a failure since the most recent quarter's GDP is about the same as when Abe's government came to power."
"There was a temporary increase, but everything has returned to the beginning," said the economist, who maintains a pessimistic attitude toward the future performance of the Japanese economy.
Sheard, a renowned Japanese economy watcher, also believes that Japan should make more concerted efforts to cut public expenditure and reform its tax system to rebuild its fiscal health.
On Japan's debt problem, Sheard warned that there is no room for complacency from Abe, his party or the BOJ on the debt issue. Japan has the biggest debt in the industrialized world.
"It is difficult to reduce the outstanding government debt, and in the long-run, the Japanese government's debt will continue to increase as the social security expenditures will soar due to Japan's rapidly aging of the population," said Noguchi.
He added that the sales tax rate, according to his estimations, has to be risen to 30 percent so as to reduce the government deficit to a controllable degree.
Japan raised the sales levy in April to 8 percent from 5 percent for the first time in 17 years, aiming to generate more revenue to pay down its ever swelling national debt. Abe announced last month that a planned sales tax rise set for next year would be delayed in the face of poor growth figures.
Even if an astonishing sales tax rate was implemented, it would only serve as a temporary measure which could not stop the government's debt from further snowballing, Noguchi concluded.
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