Lessons from Abenomics

The underpinning of the Abenomics is the weaker yen. Japan endeavored to revive its lackluster economy and stagnant consumption by lowering the yen’s value through the fiscal stimuli called quantitative easing followed by a restructuring of the economy in order to put an end to Japan’s “lost 20 years.”

To achieve the goal, Prime Minister Shinzo Abe appointed Haruhiko Kuroda — former president of the Asian Development Bank and an ardent advocate of looser monetary policy — as the governor of the Bank of Japan. As the leader of the monetary blitzkrieg, Kuroda did his best to help the Abenomics work a miracle through limitlessly pumping money into the economy.

In February, the central bank governor introduced negative interest rates for the first time in Japan’s history. That translates into a determination to arbitrarily lower the yen’s value through the QE as a last resort. But the yen’s exchange rate didn’t move as Kuroda expected. The yen’s value against the U.S. dollar soared to 107 yen per dollar Monday from the 120 yen per dollar. The yen rose to the highest point in the past 18 months after the currency has emerged as a relatively safe asset amid the world’s deepening concerns about the global economy. Major global financial institutions forecast that the yen will get stronger to the level of 100 yen against the dollar.

If the weaker yen comes to an end, the Abenomics will most likely fail because it means the collapse of a virtuous cycle from a weaker yen to revitalization of export to increased revenues for companies to more investment to wage increases and finally to more consumption. Since the start of the Abenomics in 2012, the yen plunged by a whopping 38 percent point in mid-2015.

But the recent steep rise of the yen says a totally different story as it shows that all the government’s effort to rejuvenate the lethargic economy through fiscal expansion alone only helps the economy to rebound “temporarily” unless it is accompanied by a relentless restructuring campaign.

We must learn lessons from Abenomics. The ruling Saenuri Party has come up with a Korean equivalent of quantitative easing as a campaign platform for the April 13 general election. Despite the party’s vow to confine the scope of QE to restructuring, it is nevertheless increasing money supply to the market. If our government delays the pivotal restructuring process, it leads to nowhere — except mounting national debt and more favors for insolvent enterprises. Our government must expedite the restructuring of our economy if it really does not want to follow in Japan’s footsteps.

JoongAng Ilbo, Apr. 12, Page 30