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Abenomics failing to pull Japan out of recession

Great efforts have been made to ease the tensions between China and Japan, but it is not easy, especially when we take economic factors such as "Abenomics" into consideration. Japan may even become an obstacle to promoting closer cooperation between China and the US. The main reason for this is also Japanese Prime Minister Shinzo Abe.

Abe was re-elected as head of the ruling Liberal Democratic Party (LDP) in early September without a vote as nobody else filed for candidacy in the election. This shows Abe""s political and economic policies still enjoy broad support in Japan’s political circles. There will perhaps not be fundamental changes in Abe’s economic policies, known as Abenomics, in his next presidential term.

One of the major objectives of Abenomics is monetary policy easing. As a result, the yen has retreated against the US dollar, causing a rise in import costs and a decline in consumption in Japan. Japan’s economy shrank by 1.2 percent year-on-year in the second quarter and some experts noted that Abenomics has failed to pull the country out of recession.

So why does Abe still enjoy broad support in Japan’s political circles? In fact, Japan does not have any choice other than to believe him. In the past, the country went through various cycles of economic reforms, but the failure of these measures led to the dismissal of a succession of presidents before Abe came to power in 2012. Some people in political circles view Abenomics as a last battle for the Japanese economy and believe that staying the course is vital, because if Abenomics fails, there won’t be any other way to avoid further recession.

What will happen if Japan continues on its path of Abenomics? There is a possibility that the country will enhance security measures and increase its military spending. The military industry is one of the major areas that has attracted investment under Abenomics. If we put the debate over whether Japan is aiming to boost its military strength to one side and instead focus on the economic perspective, it is reasonable for the country to raise defense spending in a bid to boost investment, add jobs in the military sector and raise manufacturing activity.

There is a risk of large-scale capital outflows when the authorities ease monetary policy to pump liquidity into the market, so the Japanese economy may not benefit from monetary easing. But if the authorities properly coordinate their economic policies by raising defense spending and boosting development of the military industry, capital outflows may to some extent be restricted, which will help to restore the Japanese economy.

Japan has sharply raised defense spending since Abe assumed power. Before Abenomics was adopted, Japan’s defense spending was generally at a level of around $40-50 billion per year. China surpassed Japan by spending $46.7 billion on defense in 2007, compared with $40.7 billion for Japan.

In the following years, China continued to increase its defense spending, reaching nearly $70 billion in 2009, while Japan’s defense spending remained stable at around $50 billion per year.

However, the situation has changed drastically thanks to Abenomics. Japan’s defense spending reached $59 billion in 2014 and surged to $42 billion just in the first half of 2015. Japan is likely to continue focusing on Abenomics and further raising its defense spending in the next few years. Japan is expected to increase its defense spending to over 2 percent of GDP in the foreseeable future, or around $70 billion per year.

This is not a new road but it is full of dangers and Abenomics could have a far-reaching impact on neighboring countries. It could also drag China into a bottomless mire of competitive military expenditure.

The impact of Abenomics on regional security could be long-lasting, and we cannot rule out the possibility that tensions between China and Japan will escalate in the future.

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