Primary Section

The cult of Abenomics

by Chris Becker

The Japanese economy has now had two decades of near zero growth, a hangover from the ebullient 1990s, where a massive housing and stock market bubble imploded, leaving a huge mountain of private debt that has been transformed into a huge mountain of public debt.

Whereas the US Federal Reserve has enacted 3 quantitative easing programs since the GFC, the Bank of Japan has done 19 and recently announced an effective endless line of them, with ¥80 trillion annually, in what almost everyone can see is a failed attempt at creating inflation.

ABOOK Sept 2015 Stimulus Japan QE the rest

Prime Minister Shinzo Abe was recently re-elected as the country’s prime minister and is facing pressure as his version of economics – Abenomics – is not succeeding as expected. Interestingly the only options, is more monetary easing, as fiscal stimulus and structural reforms (The other two “arrows” of Abenomics) have no political momentum.

More from Jeffrey Snider on why the cult of endless monetarism has to end:

 Apparently the only true economic danger in Japan, as elsewhere, is not the actual economy (which is always terrific or just about to be) but the evil, dreaded “deflationary mindsight.” So the BoJ upped its ante in case Japanese people start thinking unhappily about what QQE might not be able to do with, apparently, no real basis for them to actually think that way. .

But Japanese observers, if not the Japanese themselves, have already noticed the broken record. It even goes back to the original QE in March 2001 when the BoJ explicitly gave much the same goals for that world’s first monetary outbreak. Reaching for something they termed the “time-axis” effect, the BoJ fully expected that reducing the rates on longer-term instruments would have a direct and opposite effect on inflationary expectations; so long as that action would continue until rates, of their own, began to rise and signal an end to the “deflationary mindset”.

ABOOK Aug 2015 Japan HH Long Term2

  What none of those have amounted to is an actual and sustainable economic advance; NONE, no matter how you count them. In very simple fact, the idea that central banks “need” to keep doing them in continuous fashion is quite convincing that at the very least they don’t mean what central bankers think they mean, and perhaps worse that the more they are done and to greater extents the more harm that eventually befalls.

It isn’t difficult to suggest and even directly observe that Japan’s economy has shrunk during the QE age, but that fact isn’t applicable to Japan alone (there are sure too many non-adjusted data points that uncomfortably assert the same for even the US). That would seem to at least offer a basis for a “deflationary mindset” no matter the actual economic effects.

This is not so much investing or even finance as it is a cult (calling it a religion or even ideology is unjustifiably too charitable). That is the usefulness of “deflationary mindset” not so much as a matter of actual economic pathology but as a built-in, squishy appeal to “we’ll get it right next time.” And there is always, always a next time which doesn’t seem to count for much inside the cult when, in fact, it is everything.

Much like our own government wants to keep talking up the economy, Japans approach and indeed that of other economists who consider confidence more important than household finance reality will never work unless the core problem is addressed.


Even 20 years later, there is too much private debt and even at zero interest rate, deflationary forces will continue until its cleared or the public debt mountain shadows it so much, the entire mountain range collapses.

Latest posts by Chris Becker (see all)


  1. ‘Abenomics’ failed in the same way that QE has failed : none of the money printed went to the household. The Japanese household saving rate is now NEGATIVE, while the Japanese corporate saving rate is through the roof.

  2. Josh MoorreesMEMBER

    I wonder if the upcoming global recession will finally be the one where countries actually allow capitalism, and creative destruction, to take place. At some point they need to admit that QE doesn’t work and only serves to make the rich richer. However as is alluded to the cult/religion mentality makes it very hard to reconcile fact with ideology and cognitive dissonance will be strong.

  3. Inflation would of worked had the BOJ printed and given all wage earners a massive tax cut and removed all GST.

    • Exactly, of course QE does not work because the channel into the economy is designed to enrich the rentiers in finance and property.

      My preferred approach would be to use the QE to refund some proportion of business taxes paid in the preceding year. That way, the money gets into the economy where it goes to those who show evidence of actual productivity. If your business is not paying tax, then you are probably a “rentier” or in a dying industry.

  4. Consider the counter-factual – how would the Japanese economy be travelling without QEx?

    Equally, they could have shifted all their troubles in a single gesture with a Modern Debt Jubilee, giving every citizen, say, 4 months pay with the only condition being those with debt must pay it down (mortgage, car loans, credit cards etc). it would have been cheaper and their lost two decades avoided. Instead, endless corporate welfare.

    • David I think the system is working as it is meant to.
      It is not a Capitalist system so much as a Corporate Capitalist system

      • Exactly. Nowhere in the world is it on the political agenda, to redirect QE into the economy somewhere other than via the banking and finance sectors.

        My preferred approach would be to use the QE to refund some proportion of business taxes paid in the preceding year. That way, the money gets into the economy where it goes to those who show evidence of actual productivity. Businesses that are not paying tax, are probably “rentiers” or in a dying industry.

        Businesses that want “their share of next years QE” will pay more tax – what’s not to like about this?

        I would avoid using QE to “stimulate” chosen businesses – simply refunding tax paid last year makes it like justice, wearing a blindfold.

  5. Mmmmm…
    “Japan is the world’s largest creditor nation,[26][27] generally running an annual trade surplus and having a considerable net international investment surplus. As of 2010, Japan possesses 13.7% of the world’s private financial assets (the second largest in the world) at an estimated $14.6 trillion.[28] As of 2013, 62 of the Fortune Global 500 companies are based in Japan.[29]”

  6. Japan won’t be seeing any growth.Their population has been shrinking for 5 years. Soon they’ll be losing 1 million people per year, and this will continue for decades. Their population will be 20% smaller in 30 years time. And it will continue shrinking for decades after that!

    And no immigration for them. They dislike foreigners.

  7. Apart from Powell, one of the main proponents of monetarism in the UK Parliament in the 1970s was Sir Keith Joseph. Even he produced a paper in around 1976 if memory serves entitled “Monetarism Is Not Enough.” Needs to be more widely read than it apparently is.