Japan’s new prime minister, Shinzo Abe, is proposing a bold departure for his country’s economy. He’s mostly right. Japan continues to underperform, and bad macroeconomic policy has been the main reason. Abenomics isn’t riskless or easy, however. The government will have to be wise as well as brave.
Abe advocates what he calls a “three arrows” approach to expansionary policy: monetary, fiscal and structural. On two of the three, change is under way. He has pressured the Bank of Japan to end deflation by adopting a new inflation target and forthright quantitative easing. He has announced a supplementary budget that will further increase the government deficit. As yet, the supply-side part of the program is vague.