Nearly a decade after the launch of "Abenomics," Japan cannot still do without massive monetary and fiscal stimulus -- the two features of the economy booster program pushed by the late former Prime Minister Shinzo Abe.
A weaker yen, a byproduct of the Bank of Japan's monetary easing and welcomed as beneficial for the export-reliant economy, has reached a point where the current leader Fumio Kishida had to say its rapid weakening pace is one of the "crises" facing the country.
Even after his stepping down as the longest-serving prime minister in 2020, Abe remained an advocate of expansionary fiscal policy and the continuation of powerful monetary easing. Holding a state funeral Tuesday for Abe -- an influential yet divisive figure who was shot by a lone gunman during a campaign speech in July -- remains controversial in Japan.
Japan marked its second-longest postwar economic expansion of 71 months while Abe was in office and the country was in a state of full employment as more women and elderly people joined the workforce.
But the goal of expanding the size of its economy to 600 trillion yen ($4.2 trillion) in nominal terms is still far off, and so is the BOJ's inflation target. Wage increases continue to be minimal, partly because productivity is low, and the potential economic growth rate has dipped below 1 percent.
Though the COVID-19 pandemic since 2020 has been an unexpected, severe blow to Japan and the rest of the world, its heavy reliance on monetary easing and fiscal spending paints a picture of an economy still struggling to find a path to longer-term growth -- something that Abe's signature program failed to deliver despite his claim that "Japan is back."
Economists say Kishida is right in putting his focus on investing in people, digital transformation and green growth, after Abenomics generated a feel-good effect and lifted share prices on hopes for economic revival but largely ended up providing just short-term fixes.
"Japan has not been able to end its vicious cycle in which the potential economic growth rate is low, companies have low expectations for the future and thus wages don't rise," said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute. "Whether Mr. Kishida can distinguish his 'Kishidanomics' from Abenomics remains an open question."
"The positive aspects of the Abe era were a surge in inbound tourists and his push for free trade as seen in Japan's participation in TPP (the Trans-Pacific Partnership). But deregulation did not progress as much as (financial markets) had hoped," Kodama said.
Kishida's drive to create a new form of capitalism by achieving both growth and distribution is seen as an outgrowth of his predecessor's famous policy mix. He backs the BOJ's monetary easing and is now planning to draw up a new economic package, whose size some senior ruling party lawmakers say should be at least 30 trillion yen amid the coronavirus pandemic and Russia's war on Ukraine.
Japan's economic recovery from the pandemic fallout has been relatively slow. The size of the economy, which grew as large as 560 trillion yen during Abe's time, stood at 547 trillion yen in nominal terms in the April-June quarter.
"Monetary policy will either have to change course, or it will cause lasting damage, first to the value of the yen and then to economy. As it turns out right now, there is no free lunch for monetary policy, too," said Martin Schulz, chief policy economist at Fujitsu Ltd.
After gobbling up Japanese government bonds as part of its monetary easing, the BOJ owns roughly half of the total amount outstanding, helping limit the rise in debt-servicing costs for the government. Abe once drew fire for calling the BOJ "a subsidiary of the government" in reference to its role allowing Japan to roll over its debt.
The BOJ has to gradually "normalize" its policy by "supporting the government with policies that focus on the long-term potential of the economy and stimulating investment in growth sectors, rather than supporting indiscriminate deficit spending," Schulz said.
BOJ Governor Haruhiko Kuroda, who has stayed at the helm since Abe's time, has ruled out the possibility of raising interest rates in the next few years, defying market pressure to tweak policy in a global tightening wave.
Protracted zero interest rates and a weak yen -- now at its lowest level in 24 years versus the dollar -- have led to a rise in the number of companies with low productivity that cannot survive without them, putting a damper on wage growth.
"Even after full employment was achieved (in the 2010s), Japan's ultraeasy monetary policy continued and the country repeatedly added fiscal stimulus, which greatly distorted the allocation of resources (in the economy)," said Ryutaro Kono, chief Japan economist at BNP Paribas Securities (Japan) Ltd.
Despite low borrowing costs and robust earnings, the speed at which Japanese companies are stepping up investment in digitalization and other key areas for growth beyond the pandemic era is still slow.
Japanese companies' internal reserves, which can be used to increase investment and wages for workers, topped 500 trillion for the first time in the fiscal year that ended in March.
"The big issue is that Japanese companies may have increased their mergers and acquisitions overseas but their investment in Japan has not increased much, let alone in workers. They receive dividends from their overseas investment and reinvest them overseas," said Takuya Hoshino, a senior economist at the Daiichi-Life Research Institute.
"Investing in digitalization and green technology is important but another key area that Japan can lead the world is how to cope with the rapid aging of society," Hoshino said. "Labor-saving technology like automation is part of that, and if Japan succeeds in this area, it can be exported overseas."
For ordinary Japanese, higher wages are seen as a requisite to feel the benefits of growth -- and to have confidence in Kishida's new capitalism push.
Hoshino and other economists say tepid wage growth is partly because employment mobility in Japan is low, adding that companies need to compete more with rivals to secure qualified workers by offering higher wages or better benefits.
Kishida is also keenly aware of the need for reform. "We know that a source of a great deal of added value will be intangible, not tangible, assets. And in particular, it will be human capital," he said last week at the New York Stock Exchange, where Abe also delivered his speech years ago.
"There is nothing more thrilling in baseball than a comeback win. I am here today to tell you that, with the help of the Japanese people, we will revive and revitalize the Japanese economy," the prime minister said. "You can invest in Japan with confidence."