Tag Archives: Paradox of Thrift

Band Aid Remedy for Japan

28 May
Japan is in the center of debate after the world’s third-largest economy entered its fourth technical recession in five years. Will a band aid remedy suffice or a more robust solution is required to lift the country out of economic stagnation?
Either way, the current figures are ripping off the band aids of Abenomics from the economy; exposing the wounds to the whole world. Since the start of “Abenomics” in 2012, Japan moved back to the center of attention of global financial markets. After 25 years of economic stagnation, hopes were high that Japan would escape its long sluggishness. Abenomics actually worked for a while, but now it is moving in reverse. Plenty of economists around the globe hoped that, Japan would show the Western world, mainly the Eurozone, the way to get free from the shackles of economic crisis and avoid a similar long period of low growth and stagnating incomes.
Conversely, the failure of Abe’s plan for Japan’s recovery would not only be a disaster for the country of the rising sun but also be very bad news for central bankers and politicians in the West as well. It would prove that Keynesian policies don’t work in a world of too much debt and shrinking populations.
On the top of all this Japan is suffering from the “paradox of thrift”. Japanese are saving more because of which demand of goods is falling, thus impelling its economic stalling.
Therefore we can say that the growth engine of Japan is rapidly running out of fuel and the country needs a great leap in productivity, which is hard to attain at a time when the workforce is shrinking due to the ageing population. The only easy way to get Japan growing again is to increase exports, however a surging yen is eating into current exporters’ profits.
Simply put, Japan needs more than a strip of band aids to kick-start the country’s struggling economy.
As declared by Abe in a news conference that, “Tomorrow will definitely be better than today!” we also hope that Japan again pulls itself out to pastures in the rising sun.