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"We will be resolute in restoring our economy to a strong one."

These are the words of the 96th Prime Minister of Japan, Shinzo Abe, in his policy speech. After the Democratic Party took control of the government for about three years, the Liberal Democratic Party regained power, and Abe, who became prime minister for the second time, set out a policy to push forward with economic recovery with the "three arrows" of "monetary policy," "fiscal policy," and "growth strategy." You probably hear and see the word "Abenomics" every day, combining "Abe" (Prime Minister Abe) and "economics" (economics).

To begin with, the "economy" refers to the flow of "money," "goods," and "services." People work at companies and produce goods and services. Companies pay wages (money) to employees. People buy goods and services from companies. The government collects taxes (money) and distributes public services like police, pensions, allowances, and other benefits to the people. The "economy" is the flow of all these transactions involving money that are necessary for people to live.

Economic growth is measured by GDP (Gross Domestic Product). GDP is the total value of new products and services produced in a country in a year, and economic growth rate is the rate at which GDP has grown compared to the previous year. When the economy is doing well, the GDP growth rate is high, and when it is doing poorly, it is low.

Please see the chart above. Japan has continued to enjoy high economic growth since the end of the war, averaging 9.1% between 1956 and 1973, and 4.2% between 1974 and 1990 after the oil shock until the bubble burst in 1990. After the bubble burst in 1990, growth slowed to an average of 0.8% until 2012, a period that is sometimes referred to as the lost 20 years.

During the oil shock of the 1970s (global economic turmoil caused by soaring crude oil prices), the Japanese economy experienced its first negative growth since the war. Article 4 of the Financial Law states that "national expenditures must be financed by revenues other than government bonds or borrowings," and it was forbidden to issue government bonds to cover national deficits. However, a special law was created to allow deficit government bonds to be issued in the short term, and deficit government bonds were issued to support the Japanese economy.

After that, Japan was said to be "Japan as No.1" due to the growth of the automobile and electrical appliance industries. At that time, exports were increasing to the point of causing trade friction, but the government continued to run the Japanese economy by supplementing the budget shortfall with deficit bonds, and at the end of fiscal 2012, Japan's total national debt was 991 trillion yen, and it is said that it will exceed 1,000 trillion yen by the end of this fiscal year. At this rate, Japan may go bankrupt, just like some European countries that were on the brink of bankruptcy. What can be done to help the Japanese economy overcome this slump and regain its strength?

"Fiscal policy" is when the government directly steps into the private market and spends money. On the other hand, "monetary policy" is when the government lends money to the private market, only indirectly supporting it, with the hope that if there is more money in the private market, the private market will use it wisely.

The orthodox theory until now has been that fiscal policy has been "tax cuts" or "public works," and monetary policy has been "a reduction in the Bank of Japan's official discount rate," or the Bank of Japan purchasing government bonds in the private market and paying for them, thereby increasing money in the private market, through "buying operations."

If I were to compare the state of the Japanese economy up to now, I would say it is similar to a situation where someone thinks they have a cold, takes cold medicine or gets an IV drip, but the cold doesn't go away and the illness drags on, until the symptoms worsen and they develop pneumonia.

If it were a human body, we would first take medicine to treat it and let the body recover, then, once the body has recovered, we would exercise and improve our lifestyle to build up our own strength and maintain our health.

It would be easier to understand if you think about the Japanese economy in the same way. First, we treat it with "fiscal policy" and "monetary policy" as medicine or injections to return it to a normal state of health, then we revive industry as a "growth strategy," and let's build up the strength of the Japanese economy itself and improve its constitution. This is the approach that Abenomics is.

The 1980s was a time of economic transformation in Europe and the United States. The US economy hit rock bottom after the Vietnam War, and the UK was also suffering from what was called the "British disease." Although the UK had been at the forefront of the economy since the Industrial Revolution in the 18th century, it was rapidly overtaken by other countries and had become the most outdated country in the world. Both countries faced the urgent need to revitalize their economies.

The Thatcher administration in the UK created a small government by privatising state-run enterprises and cutting back on excesses in welfare to improve efficiency. The Reagan administration in the US implemented bold deregulation and liberalisation, revitalising private enterprises and revitalising industry. Companies that were born around this time include Apple and Microsoft, which have since grown into global corporations. The economic revival of the US and UK was a success, and from the 1990s to the present day they have been able to maintain stable growth rates, even amongst developed countries, averaging 2-3%.

So what about Japan? As mentioned earlier, the fluctuations are larger than in developed countries such as Europe and the US, with an average of 0.8% over the past 20 years. Japan has also privatized state-run enterprises, such as Nippon Telegraph and Telephone Public Corporation (NTT) in 1985, Japan National Railways (JNR) in 1987, and Japan Post (Japan Post) in 2007. When privatizing, related laws were deregulated and liberalized, allowing new companies to enter the market, which led to lower prices through competition between companies, the creation of various services, and the creation of new jobs.

However, looking at the recovery of the UK and the US since the 1990s, it is clear that there are many things Japan has yet to do, and that Japanese industry still has room to grow.

Take "electricity" for example. Although Japanese electric power companies have been privatized, they are protected by law and are monopolies. Currently, even if private companies generate electricity, they cannot rent power lines, so they cannot transmit the electricity and cannot make a business out of it. However, as is the case with NTT now, if they can use the power lines by paying a usage fee, or if companies that generate electricity can simply have Tokyo Electric Power Company purchase their electricity, it would open up new business opportunities.

The Nippon Telegraph and Telephone Public Corporation was privatized to become NTT, large companies like SoftBank and au developed, and the IT industry became more active. If this trend leads to future business development in areas such as energy, ecology, environmental issues, and social welfare, there is a possibility that a variety of spin-off industries will emerge.

However, in today's Japan, there are still many sectors that are considered sacred or of national interest and protected by laws, making it difficult for private companies to freely enter the market. Simply relaxing or liberalizing these regulations would help to stimulate various industries, and it would be possible to achieve the goal of a 2% economic growth rate. Of the three arrows of Abenomics, the "growth strategy" is the key.

Abenomics has only just begun. Since the Abe administration took office, the yen has weakened from around 80 yen to the dollar to over 100 yen, stock prices have reached a new high since the beginning of the year, reaching the 15,000 yen level, and signs of an economic recovery are becoming apparent.

However, due to the sudden depreciation of the yen, companies that import resources and food to make products and companies that sell imported goods are being forced to raise prices. Furthermore, the yen and stock prices have recently been fluctuating wildly, and the US economy has also been affected, raising concerns about market excesses and instability.

For us, the people, the good economy has not yet translated into income, so this is a big blow to household finances. When will the economy improve and the people can truly feel that the economy is doing well? Will we really be able to escape deflation? Given the current situation, I think it is undeniable that there is uncertainty about the future.

However, let's think about this a little differently.

Recently, a natural resource called methane hydrate has been discovered in Japan, but until now, the scarcity of such natural resources has had a major impact on the Japanese economy. However, the Japanese economy grew dramatically in the 1960s, and the country was able to enter a period of high economic growth. It is said that this was due to the high quality of the Japanese workforce. Furthermore, we can be confident that the Japanese people have great potential, not only in the world-class energy-saving technology developed in the 1980s, but also in their manufacturing technology and technological development capabilities.

If we consider people's potential and technological capabilities as resources, I think Japan is a wonderful resource-rich nation. From now on, the "growth strategy" of Abenomics will likely give birth to new industries and allow many new companies to enter the market. Whether working adults or students, improving themselves to better engage in economic activities in the future of Japanese society could be Japan's potential. In fact, each and every one of us, the Japanese people, may be the savior of the Japanese economy.

(Published in 2013)