Japan: Betting on Inflation

The case focuses on the challenges still confronting Prime Minister Shinzo Abe at the end of 2013, a year after he has been in office. It also gives an overview of Japan's earlier economic performance, focusing primarily on the period after it suffered a stock market and real estate crash in 1989-1992. During his first year in office, Abe introduced three sets of policies designed both to reverse the deflation that had plagued Japan since around 2000 and to increase the Japanese growth rate. The first of this three-pronged approach consisted of appointing a central bank governor who committed himself to raising the inflation rate and who vastly expanded the Bank of Japan's balance sheet in an effort to accomplish this. The second involved a fiscal policy plan whose initial thrust was expansionary, but which also sought to reduce future budget deficits. The last one involved a series of microeconomic reforms aimed at expanding GDP and labor productivity. These included initiatives aimed at increasing female labor force participation to compensate for Japan's aging population, reforms of the electric power sector directed at reducing electricity costs, and efforts designed to promote the "health and longevity sector." The case ends by discussing Abe's foreign policy challenges, including Korea's and China's reactions to visits by Japanese officials to the Yasukuni shrine.