{
  "title": "How to Reload Abenomics",
  "publication": "IMF News, August 2, 2016",
  "sourceUrl": "https://www.imf.org/en/news/articles/2016/08/02/13/00/na080216-how-to-reload-abenomics",
  "canonical": "https://www.imf.org/en/news/articles/2016/08/02/13/00/na080216-how-to-reload-abenomics",
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  "summary": "Japan needs a sizeable policy upgrade to meet the country’s ambitious package of economic policies to tackle two decades of mild deflation and weak growth.",
  "publishDate": "2016-08-02",
  "sections": [
    {
      "heading": "Overview and challenge",
      "content": "- Japan needs a sizeable policy upgrade to meet the country’s ambitious package of economic policies to tackle two decades of mild deflation and weak growth.\n- After initial success of Abenomics—the three “arrows” of monetary stimulus, fiscal “flexibility” and structural reform—the economy’s momentum is flagging and deflation risks are on the rise.\n- Contributing factors to weak momentum:\n  - The yen has appreciated substantially since 2015, damping exports.\n  - Global trade slowdown has reduced external demand.\n  - Positive effects from the commodity price decline have not fed through to the economy.\n  - Policy uncertainty and stock market volatility have hampered domestic confidence and demand.\n  - A shrinking and aging population are weighing on growth and investment opportunities."
    },
    {
      "heading": "Key macroeconomic findings and statistics",
      "content": "- Growth projections:\n  - Growth is expected at 0.3 percent in 2016.\n  - Growth is expected at 0.1 percent in 2017.\n- Inflation projections:\n  - Headline inflation would rise from 0.2 percent in 2016 to 0.4 percent in 2017.\n- Labor market:\n  - Unemployment rate at 3.1 percent in June 2016.\n  - Base wage growth at 0.4 percent in 2016.\n- Fiscal and balance-sheet constraints:\n  - Budget deficit at about 5 percent of GDP in 2016.\n  - The Bank of Japan’s balance sheet is one of the largest among advanced economies.\n  - Policy interest rates dipping into negative territory.\n- Abenomics targets currently out of reach under current policies:\n  - Consumer price inflation at 2 percent.\n  - Real GDP growth at 2 percent.\n  - A primary budget balance by 2020."
    },
    {
      "heading": "Policy diagnosis",
      "content": "- Limited room remains for traditional monetary and fiscal stimulus given high gross and net public debt and other balance-sheet constraints.\n- To revive inflation and growth, the IMF emphasizes the need for bolder reforms and a coordinated policy mix focused on income policies, labor market reforms, and fiscal consolidation."
    },
    {
      "heading": "Recommended policy actions",
      "content": "- Reload with income policies to spur firms to raise wages:\n  - Use mechanisms to induce private enterprises to raise wages, such as mimicking the “comply or explain” mechanism used for corporate governance reform.\n  - Expand tax incentives (or introduce penalties as a last resort).\n  - Raise administratively controlled wages and prices in line with the inflation target.\n  - Continue the already adopted decision to increase minimum wage growth by 3 percent per year.\n- Implement labor market reforms to remove duality:\n  - Promote new hiring under contracts that better balance job security and wage increases.\n  - Accelerate the “equal-pay for equal work” program.\n  - Eliminate impediments to full-time or regular work through tax and social security reform.\n  - Increase available child care facilities.\n  - Encourage more foreign workers into the country.\n  - Provide sustained and balanced fiscal and monetary support for demand to facilitate pass-through of higher wages to prices and to prevent structural reforms from creating deflationary pressures.\n- Renewed focus on fiscal policy and sustainability:\n  - Adopt a gradual but steady path of consumption tax increases, starting as soon as possible.\n  - Implement an explicit expenditure rule to contain social security spending growth.\n  - Strengthen fiscal institutions, including more independent macro-fiscal forecasts to ensure budget projections are built on realistic macroeconomic assumptions.\n- Enhance monetary policy effectiveness and credibility:\n  - Raise inflation expectations through clearer communication and better use of forward guidance.\n- Safeguard financial stability:\n  - Enhance monitoring of bank profitability and JGB market liquidity.\n  - Bolster resilience of regional banks through further regulatory reforms."
    },
    {
      "heading": "Japan’s top five priorities (as outlined)",
      "content": "- Implement more ambitious structural reforms, particularly in the labor market to reduce duality and encourage the participation of women, older workers and foreign professionals.\n- Add stronger income policies to the policy mix targeted at enhancing wage-price dynamics, facilitated by sustained and balanced fiscal and monetary demand support.\n- Commit to a credible fiscal consolidation plan, with a pre-announced path of steady consumption tax hikes; broaden the tax base; reform the social security system; and strengthen the fiscal framework to enhance policy credibility.\n- Enhance the effectiveness and credibility of monetary policy; raise inflation expectations through clearer communication and better use of forward guidance.\n- Safeguard financial stability, including by enhancing the monitoring of bank profitability and JGB market liquidity, and bolstering resilience of regional banks through further regulatory reforms.\n\nHow to Reload Abenomics — IMF Country Focus, August 2, 2016.\n\n---\n\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- IMF Country Focus\n- Press Release\n- Staff Report\n- Selected Issues\n- Japan and the IMF\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2016/08/02/13/00/na080216-how-to-reload-abenomics"
    }
  ],
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    "Published: August 2, 2016",
    "Japan needs a sizeable policy upgrade to meet the country’s ambitious package of economic policies to tackle two decades of mild deflation and weak growth.",
    "After initial success of Abenomics—the three “arrows” of monetary stimulus, fiscal “flexibility” and structural reform—the economy’s momentum is flagging and deflation risks are on the rise.",
    "Contributing factors to weak momentum:",
    "Growth projections:",
    "Inflation projections:",
    "Labor market:",
    "Fiscal and balance-sheet constraints:",
    "Abenomics targets currently out of reach under current policies:",
    "Limited room remains for traditional monetary and fiscal stimulus given high gross and net public debt and other balance-sheet constraints.",
    "To revive inflation and growth, the IMF emphasizes the need for bolder reforms and a coordinated policy mix focused on income policies, labor market reforms, and fiscal consolidation.",
    "Reload with income policies to spur firms to raise wages:",
    "Implement labor market reforms to remove duality:",
    "Renewed focus on fiscal policy and sustainability:",
    "Enhance monetary policy effectiveness and credibility:",
    "Safeguard financial stability:",
    "Implement more ambitious structural reforms, particularly in the labor market to reduce duality and encourage the participation of women, older workers and foreign professionals.",
    "Add stronger income policies to the policy mix targeted at enhancing wage-price dynamics, facilitated by sustained and balanced fiscal and monetary demand support.",
    "Commit to a credible fiscal consolidation plan, with a pre-announced path of steady consumption tax hikes; broaden the tax base; reform the social security system; and strengthen the fiscal framework to enhance policy credibility.",
    "Enhance the effectiveness and credibility of monetary policy; raise inflation expectations through clearer communication and better use of forward guidance.",
    "Safeguard financial stability, including by enhancing the monitoring of bank profitability and JGB market liquidity, and bolstering resilience of regional banks through further regulatory reforms.",
    "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[IMF Country Focus](https://www.imf.org/en/news/country-focus)",
    "[Press Release](http://www.imf.org/en/News/Articles/2016/08/02/12/14/PR16372-Japan-IMF-Executive-Board-Concludes-2016-Article-IV-Consultation)",
    "[Staff Report](http://www.imf.org/external/pubs/cat/longres.aspx?sk=44158.0)",
    "[Selected Issues](http://www.imf.org/external/pubs/cat/longres.aspx?sk=44159.0)",
    "[Japan and the IMF](http://www.imf.org/external/country/jpn/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
  ],
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