China & East Asia's Economies
Abenomics and Japan's Ageing Economy
How Japan tried to escape years of low growth and falling prices with Abenomics, and how its ageing, shrinking population shapes its economy.
Japan is one of the world’s largest and richest economies, but after its asset bubble burst around 1990, it experienced years of slow growth and mild deflation, falling prices. It also has one of the oldest populations on Earth. Its efforts to deal with these challenges are closely watched by other ageing countries.
Abenomics
In December 2012, Shinzo Abe became prime minister and launched a programme known as Abenomics, with “three arrows”:
- Aggressive monetary easing: the Bank of Japan, under governor Haruhiko Kuroda from 2013, bought huge amounts of government bonds and other assets to push inflation up to a 2 percent target.
- Flexible fiscal policy: government spending to support demand.
- Structural reforms: measures to raise growth, such as encouraging more women and older people to work, and corporate governance reforms.
Results
Abenomics ended the worst of deflation, weakened the yen, boosted company profits and share prices, and raised employment, especially among women. But inflation mostly stayed below 2 percent until global price rises in 2022, and growth remained modest.
The Bank of Japan introduced negative interest rates in 2016, charging banks for some deposits held at the central bank. It ended negative rates in March 2024, its first interest rate rise in 17 years, as inflation had finally risen above target.
Under Abenomics, the government promoted "womenomics", encouraging more women to join the workforce through expanded childcare and other measures. The share of Japanese women in employment rose substantially in the 2010s, helping offset the shrinking working-age population, though many of the new jobs were part-time or non-regular.
An ageing, shrinking population
Japan’s population peaked around 2008 and has been falling since. Nearly 30 percent of Japanese people are 65 or older. This creates challenges:
- A shrinking workforce limits growth.
- Pension and health costs rise.
- Rural areas are emptying, with many abandoned homes.
Japan has responded with robots and automation, encouraging older people to keep working, and gradually admitting more foreign workers.
Government debt
Japan’s government debt is the highest among rich countries, at over 200 percent of GDP. Yet for years it paid very low interest, partly because most debt is held domestically, including by the Bank of Japan.
Japan's overall GDP growth has been slow, but because its population is shrinking, income per person has grown more steadily than headline figures suggest. Japan remains highly productive and prosperous, with low unemployment and long life expectancy.
- Japan faced years of slow growth and mild deflation after its bubble burst around 1990.
- Abenomics from 2012 combined monetary easing, fiscal support and structural reforms.
- The Bank of Japan ended negative interest rates in March 2024.
- Japan's ageing, shrinking population and high public debt shape its economic choices.
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