AS Shinzo Abe approaches the milestone of becoming Japan’s longest-serving premier later this week, his namesake economic strategy still lacks traction despite progress in supporting growth.

Since Abe returned as premier in December 2012, Abenomics has aimed to secure solid growth, generate stable inflation and reinvigorate Japan’s companies. Most of the heavy lifting has been done by the Bank of Japan as the constraints of two sales tax increases effectively tightened the government’s purse strings.

Nearly seven years into the program, prices are rising, Japanese firms are making more money and the jobless rate is near a 27-year low. In 2019, the economy has continued to expand despite a global downturn that has battered exporters, suggesting that a domestic engine of growth is in place.

Yet a virtuous cycle of rising corporate profits that feed into higher wages, consumer spending and inflation still appears to be in low gear. Meanwhile, progress remains limited on structural reforms aimed at making Japanese firms more competitive and better utilizing the economic potential of women.

A huge push by the Bank of Japan to generate 2 percent inflation in around two years has segued into a long-haul battle as price growth has stayed stubbornly low. That problem isn’t isolated to Japan, given the downward pressure on prices from globalization, e-commerce and cheaper commodities. But the reluctance among consumers and companies to accept higher prices after years of falling prices is specific to Japan.

The central bank’s massive bond buying campaign to fuel inflation has landed the Bank of Japan with a pile of assets that’s bigger than the size of the world’s third-largest economy.

In 2016, it changed tack to focus more on interest rates than asset purchases, but negative rates and low bond yields have squeezed banks and life insurers, adding to the impression that the central bank is running out of ammunition.

Still, the Bank of Japan’s stimulus has contributed to one of the key successes of Abenomics: a weaker yen. The more favorable exchange rate has delivered record corporate profits and higher stock prices, leading to more capital spending, larger dividends and more share buybacks.

That’s progress, but companies are still hoarding cash that the government would rather see spent on investment and higher wages that can fuel the economy’s virtuous cycle.

(SD-Agencies)