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COVID-19 in Japan
The first confirmed case of COVID-19 in Japan occurred on January 16, 2020 (Sim, 2020). Since then, the spread of COVID-19 began to have a serious adverse effect on the Japanese economy as the number of confirmed cases of COVID-19 gradually increased in Japan. In response, the Japanese government implemented various expansionary fiscal policies to cope with the COVID-19 pandemic, including emergency subsidies to small and medium-sized enterprises, housing or office rental support, and special disaster subsidies of 100,000 yen per person (KPMG, 2020).
Economic Outlook of Japan
Abenomics was implemented in anticipation of a virtuous cycle of inflation following the economic boom by stimulating the economy through quantitative easing, increasing production and employment. However, the economic downturn caused by the COVID-19 pandemic has faced deflation and little inflation has emerged. After the COVID-19 pandemic, debate continues over whether the Japanese economy will show inflation or deflation.
One Side: Expecting Inflation
If inflation is forecasted, demand contracted by the COVID-19 pandemic will soon recover, leading to economic growth. It is also believed that opportunities for AI and 5G businesses following the new normal lifestyle of the post-COVID-19 era could contribute to economic growth. Haruhiko Kuroda (2020), the governor of the Bank of Japan, also said in a press conference that it is true that there is no expected inflation, but this is not raising the risk of falling into deflation. Kuroda (2020) added, “We expect capital expenditure to rebound, as the hit from COVID-19 eases and helps lift corporate profits.”
After the COVID-19 pandemic, Japan has been actively trying to introduce the digital approach to industrial sites and the Japanese economy. Japan's Parliament approved a law to set up a new Digital Agency as the government's handling of the pandemic, including stumbles in its vaccine roll-out, underscored the country's need to catch up on technology (Bloomberg, 2021). Furthermore, Seiji Adachi (2021), the Bank of Japan board member, said that a post-pandemic world may offer a big chance to achieve Japan’s 2% inflation target if retailers can charge more for their services unlike in Japan's past periods of deflation. Opportunities for new businesses, which ironically have opened with the COVID-19 pandemic, are expected to refresh the stagnant Japanese economy and become new drivers.
The Other Side: Expecting Deflation
On the other hand, the others predict that Japan's economy will continue to suffer deflation. After COVID-19, genuine deflation, a broad persistent fall in prices, has been driven mainly by external and special factors (Sachdeva, 2020). In particular, the fall in the oil price and the “Go to Travel” subsidy have driven Japanese inflation into negative territory (Sachdeva, 2020). The stagnation of economic growth could lead to productivity and employment instability, resulting in a vicious cycle of deflation affecting the economy again.
To prevent a long-term crisis, the Japanese government will continue to provide financial support in response to the declining population, falling demand due to the stagnation, and the COVID-19 pandemic. However, financial support is not expected to continue for a long time. This is because it is not easy for the central government's active funding to create inflation, which could be observed in the past collapse of the bubble economy. Judging from this, deflation could continue in Japan in the post-COVID-19 era due to global external effects such as lowered oil prices.
Japan’s Challenges in the Post-COVID-19 Era
The central and local governments failed to realize their fiscal health goals despite two increases in consumption tax (The Asahi Shimbun, 2020). In addition, due to the COVID-19 pandemic, the accumulated fiscal deficits have been deteriorating. The Suga Cabinet in the post-COVID-19 era should respond to what has been overlooked so far while continuing existing policies of Abenomics. In the end, it is economic growth strategies that determine the success of post-Abenomics' economic and fiscal policies. If the government fails to break away from deflation and rebuild its finances, it will be difficult to avoid a decline in the standard of living of the people. From this point of view, the economic growth strategy that the Abe Cabinet had been doing is basically reasonable, but there is a regret that most of the figures originally targeted by the Cabinet had not been achieved. The ultimate goal is to represent a new form of the country that will lead to public security and empathy in the wake of the post-COVID-19. The Suga Cabinet's challenges for economic growth in the post-COVID-19 era can be organised as follows.
Clear Guidance and Sustainability
Firstly, clear, detailed guidance and sustainability are needed for the various slogans previously existing under Abenomics. It could be positively evaluated that the Abe Cabinet had pushed ahead with a series of new slogans such as "100 million citizens of active roles," "Corporate Governance Reform," and "100-year Life." However, there was also a limitation that the Cabinet had been negligent in continuous efforts.
Although it was highly regarded that certain achievements were made by encouraging labour unions to participate in the early Labour Relations Commission meetings, the union was excluded in the latter period of the administration and pushed ahead without considering the situation at the site (Nakakita, 2015). The next administration needs to revive the framework of labour, employer, and public interests again, actively accepting the voices of workers, leading to policymaking. Again, labour unions need to be recognized as important members of the Labour Relations Commission, while also accepting the voices of non-regular workers and freelancers more actively.
Revised State Intervention and Balanced Fiscal Policies
Secondly, it is necessary to expand revised state intervention and implement balanced fiscal policies. Although there is a negative aspect of the cumulative increase in national debt, the Abe Cabinet's efforts to prioritize economic growth have increased corporate profits, tightened labour markets, and almost overcome deflation. Also, under Abenomics, Japan maintained relatively high stock prices (Goldberg, 2017). However, to continue the positive features in the post-COVID-19 era, the task remains to build sustainable economies and finances that could shed the financial deficit caused by the COVID-19 pandemic.
New Systems in the Digital Economy
Lastly, it is required to prepare measures to prevent the widening gap between classes and establish an institutional system due to the post-COVID-19 digital economy. Digitization and the spread of AI and robots will widen the gap between people classified by sex, age, and income. In response, revised income redistribution is needed through social security and tax reform. Especially, it is necessary to establish a safety net due to changes in the way people work, such as increased telework and freelances during the COVID-19 pandemic.
Furthermore, in the case of Japan, which is relatively behind in digitalisation, there should be an introduction of an Internet issuance system on which various civil service documents can be issued. It is needed to make better use of the My Number system, which started in 2016, to establish a digital-based system suitable for the post-COVID-19 era. Recently, the Suga Cabinet is trying to improve the efficiency of non-face-to-face work by switching from stamp signing to digital signing (AFP, 2020). As such, the faster various measures and institutional systems are constructed, the faster the development of Japan's digital economy will be.
Conclusion
The Abe administration's political challenge was how to revive the Japanese economy, which was further sunk into a mire after the COVID-19 pandemic. Rather than saying that Abe's resignation ended Abenomics, it is expected that post-Abenomics will be deployed in the post-COVID-19 era. Even after the COVID-19 breakdown, Japan’s unemployment rate has soundly remained at a certain level for the time being due to the government's expansion of subsidies (Ministry of Internal Affairs and Communications, 2021). In this situation, it is important how to link the employment structure to Japan's growth engine and also how to lead to fiscal soundness during the contained interest rate period. In order to revive the immediate economic downturn caused by the COVID-19 pandemic, the current Suga Cabinet is expected to continue Abenomics' stance rather than introduce completely new domestic economic policies but revise and develop it further to suit the situation.
References
Adachi, S. (2021, June 2). Japan may see inflation perk up in post-COVID era, says BOJ board member. Retrieved from Reuters: https://www.reuters.com/world/asia-pacific/japan-may-see-inflation-perk-up-post-covid-era-says-boj-board-member-2021-06-02/
AFP. (2020, November 12). PM Suga to stamp out old bureaucratic practice. Retrieved from The Straits Times: https://www.straitstimes.com/asia/east-asia/pm-suga-to-stamp-out-old-bureaucratic-practice
Bloomberg. (2021, May 12). Japan passes digital law as Covid-19 underscores tech struggles. Retrieved from The Straits Times: https://www.straitstimes.com/asia/east-asia/japan-passes-digital-law-as-covid-19-underscores-tech-struggles
Goldberg, S. (2017, November 7). Japan's Stock Market Rebounds Under Abenomics. Retrieved from Kiplinger: https://www.kiplinger.com/article/investing/t024-c007-s001-japan-s-stock-market-rebounds-under-abenomics.html
Kihara, L. (2020, November 24). BOJ's Kuroda rebuffs view Japan heading towards deflation. Retrieved from Reuters: https://www.reuters.com/article/us-japan-economy-kuroda-deflation-idUSKBN28409K
KPMG. (2020, December 2). Japan: Government and institution measures in response to COVID-19. Retrieved from KPMG Web Site: https://home.kpmg/xx/en/home/insights/2020/04/japan-government-and-institution-measures-in-response-to-covid.html
Ministry of Internal Affairs and Communications. (2021, May). Labour Force Survey. Retrieved from Statistics Bureau: https://www.stat.go.jp/english/data/roudou/index.html
Nakakita, K. (2015, June). 労働政治の変容と第二次安倍政権. Retrieved from 労働調査協議会: https://www.rochokyo.gr.jp/articles/15062.pdf
Sachdeva, P. (2020, October 6). Will deflation sour the Suga high in Japan? Retrieved from Schroders: https://www.schroders.com/en/bm/asset-management/insights/economic-views/will-deflation-sour-the-suga-high-in-japan/
Sim, W. (2020, January 17). Japan confirms first case of infection from Wuhan coronavirus; Vietnam quarantines two tourists. Retrieved from The Straits Times: https://www.straitstimes.com/asia/east-asia/japan-confirms-first-case-of-infection-with-new-china-coronavirus
The Asahi Shimbun. (2020, September 14). EDITORIAL: Return to fiscal health remains a distant goal as Abe leaves office. Retrieved from The Asahi Shimbun Web SIte: http://www.asahi.com/ajw/articles/13725908