Questioning Abenomics and a Keynesian Approach to Japan’s Deflation Problem via Input-Output Analysis

Abstract

Japan’s economy has had chronic deflation and high public debt problems so that it has been trying to handle its problems based on either the demand-side or the supply-side for more than two decades. This paper suggests that a perspective of Keynesian-inspired Japanese economic policy may positively impact a specific part of the economy such as demand-side solutions, as mentioned in Keynes’ theory. The Japanese economy is examined by applying the Input-Output (I/O) method in which the aggregated eleven-sector is arranged by using statistical data from the Ministry of Economy, Trade, and Industry (METI). Firstly, our analysis focuses mainly on the updated 2012 domestic I/O table in order to understand the Japanese economic structure by examining final demand elements and eleven sectors, associated with the Leontief method. Secondly, this paper then investigated comparing with Abenomics representing by a mix of the new Keynesian and neoliberal policies in order to comparatively analyzed between the current economic structure and the economic policy and lastly provided some discussions to figure out in perspective of how to solve some economic issues. Therefore, not only did this paper delineate three scenarios/keys through dominant final demand which account for the public consumption expenditures (PUCE) and the public gross fixed capital formation (PUGFC); the target of the growth rate -the automobile sector through PUGFC-, the employment rate -the commerce sector through PUCE-, and the import rate -the commerce sector through PUCE- based on the results of the data analyzed, but also comparatively examined Abenomics in order to provide some possible policy paths which highlight the demand-side remedies for the economic issues; structural reform in the fiscal sustainability, mainly wage increase (especially low and middle incomes), working practice (bringing back the mutual work environment), and fair tax system.