Abenomics was not a bad idea. It just did not understand Japanese.

When Shinzo Abe returned to power, the goal of his administration was clear: to bring the value of the yen down and restore the competitive edge of Japanese companies on the global stage.

The problem then, as it is now, is that a strong yen makes Japanese exports more expensive, encouraging markets to seek alternative sources. For Japan, this has meant that the automobile industry among others has seen a decline in exports with countries turning to South Korean car manufacturers who have benefitted from a relatively much weaker Won.

Shinzo Abe began his second term in office with a public stimulus package. By pumping money into the economy, the hope was to get the economic machinery moving again. With more money moving within the economy, the belief was that this would encourage companies to be more ambitious with investment, which in turn would create more stable jobs and increase consumer spending.

However, Abe underestimated the typically cautious nature of Japanese companies and the perception with which they viewed the yen ‘crisis’. Although exports decreased, companies did not reach a point whereby they panicked but rather accepted the losses as an ordinary consequence of macro affairs. In other words, although profits were less lucrative, they were enough to be content with and this tempered any desire to secure loans.

The result was that the public stimulus package led to huge amounts of liquidity in the banks, threatening stagnation as banks found no avenue with which to release liquidity to the market. With so much cash and limited appetite for borrowing in the market, the bank decided to buy up government bonds. In other words, the money went back to where it came from, defeating the purpose of the stimulus.

Moreover, the public discourse over the future of Japan’s economy, as well as the generally high cost of living in the major cities (Tokyo in particular), has led to caution even among consumers. When Abe introduced allowances to low-income families to encourage spending, these families simply put the allowance in their savings, anticipating tougher time, once again defeating the purpose behind the stimulus.

Abe’s stimulus package lacked measures to ease these social concerns over work-family life balance, with younger workers often seeking to save money in order not to be caught out by parking space charges, higher rent, and transport costs that come with working in the city.

In other words, Abe misjudged the public and social mood in Japan, and Abenomics appears to be a case of a sound academic theory lacking in practicality in implementation.  Put simply, Abe relied on crude pumping of money, failing to delicately navigate growing concerns amongst the younger population over their futures, and established family concerns over mitigating what they see as an impending economic crunch.

Of course, it is not all Abe’s fault. Japan is not insulated from global events and although the Yen dropped slightly in 2013, Brexit and Trump’s election victory have accordingly increased the Yen’s value against the Pound Sterling and US Dollar, causing much frustration amongst Japanese officials.

Abe appears to have learnt some lessons from the failures of his first stimulus package, and this is reflected in the new package agreed in 2016 which includes an increase in child welfare. However, the reality is that the new stimulus still focuses heavily on infrastructure projects, including investment in ports and tourism, as well as low interest rates to the private sector, as opposed to more welfare measures that would ease social concerns over the economy and encourage consumer spending. The increases in welfare are not significant enough to deter Japanese citizens from saving and it is difficult to see what difference this second stimulus package will have on the economy.