Japan Institute for National Fundamentals
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Speaking out

Etsuro Honda

【#1298】What Should Be Inherited Is Evolved Abenomics

Etsuro Honda ／ 2025.10.16 (Thu)


October 15, 2025

　
Sanae Takaichi, the newly elected leader of the ruling Liberal Democratic Party, has stated that she will inherit Abenomics as the basic concept of economic policy. In response, concerns have been raised in Japan and abroad that if a bold fiscal and monetary policy like Abenomics is implemented at this moment, financial markets will be destabilized to disrupt the real economy. However, this is a misunderstanding. Abenomics itself changes depending on economic conditions. At this point, Takaichi is not thinking at all about reproducing Abenomics as it was at its beginning, but plans to explore an “appropriate policy to turn public anxiety into hope.”

Stimulating demand is still necessary

Abenomics seeks to implement (1) bold monetary easing, (2) flexible fiscal policy, and (3) growth strategies for inducing private investment, with the aim of breaking away from deflationary recession characterized by continuous price declines and paving the way for sustainable economic growth.

At the heart of the idea is that people’s economic behavior changes greatly depending on their mind. In a society where prices continue to fall, a pessimistic mind about the future takes hold to make consumption and investment sluggish and lead to the loss of economic growth potential. In that case, the premise of economic growth is to spur consumption and investment by continuously stimulating the economy and form a moderate inflationary mindset. Policies for the government and the Bank of Japan to trigger such a change in mindset are the inflation target of 2% for price stability and a combination of proactive fiscal policy and accommodative monetary policy.

Currently, Japan is not in a state of deflation in the sense of a sustained decline in prices. On the contrary, the latest consumer price index excluding fresh food for August showed a year-on-year increase of 2.7%, exceeding the price stability target. This marks a significant shift from December 2012, when Abenomics was launched amid a 0.2% drop in the CPI. As such, bold fiscal and monetary measures associated with Abenomics are no longer necessary.

However, a significant portion of the inflation rate at 2.7% was attributable to hikes in imported raw materials prices arising from overseas price increases, which were passed on to domestic prices through the process of distribution. Demand-pull inflation, in which domestic wage growth stimulates consumption and pushes up prices, remains in the upper 1% range and is still seen as falling short of the target. In this way, the idea of Abenomics, which emphasizes the inflation target of 2% for price stability and continues to stimulate consumption and investment to achieve it sustainably, remains relevant.

Expected effect of improving productivity

The evolved form of Abenomics places emphasis on the idea that spurred demand can stimulate capital investment and other potential supply capacity and has the effect of improving productivity. This idea, known as high-pressure economy theory, has existed for some time, but it has attracted attention since former U.S. Federal Reserve Chair Janet Yellen advocated for it.

As demand grows, the government will be able to drive wage increases through labor shortages, labor market reform to make it easier for workers to move to more productive companies, and proactive investment in cutting-edge fields including crisis management, contributing to improving productivity.

Abenomics can evolve.

Etsuro Honda is a member of the Planning Committee of the Japan Institute for National Fundamentals and a former special adviser to the cabinet. He advised then Prime Minister Shinzo Abe for the success of Abenomics.