Priorities for the Japanese Economy in 2015 (January 2015)

Improving the Working Conditions in Japan is Necessary: From my experience in Australia

OKIMOTO Tatsuyoshi
Visiting Scholar, RIETI

Achievements of the first and the second arrows of Abenomics and the dilution of their effects

It is not an exaggeration to say that 2014 was a turbulent year for the financial market in Japan, as was 2013. The fluctuation range of the Nikkei Stock Average was more than 4,000 yen, and that of the exchange rate of the yen against the U.S. dollar was more than 20 yen. Although these figures are comparable to those in 2013, there was one element that was slightly different: the movement of share prices. The fluctuation range of share prices in 2013 was nearly 6,000 yen, and most of them were increases. On the other hand, more than half of the fluctuations of share prices in 2014 were explained by declines. The depreciation of the yen and the increase in share prices are parts of the main objectives of the first arrow (bold monetary policy) and the second arrow (flexible fiscal policy) of Abenomics, and it can be said that these policies achieved great results, given the movements of share prices and exchange rates since the inauguration of the Abe administration. As far as the movement of share prices is concerned, however, it can be said that the effect of Abenomics began to sputter in 2014.

It is no surprise that the effects of the monetary and fiscal policies have been diluted. In the first place, the main purpose of the monetary and the fiscal policies is to stimulate and underpin the economy temporarily during difficult economic times, and it is quite unlikely that stock returns and the economic growth rate will rise permanently due to these policies. Nevertheless, we would have no problem if the government were able to implement additional bold monetary and fiscal policies endlessly, as the Bank of Japan (BOJ) did when it embarked on additional monetary easing on October 31, 2014. However, we are no longer in a situation that allows us to take new additional bold monetary and fiscal policies without end, given the current conditions where rising government debt has become a heavy burden. For example, in terms of the monetary policy, although the BOJ's additional monetary easing on October 31, 2014 produced a certain result as its scale was larger than expected by the market, it has become difficult for the central bank to implement additional monetary easing policies that are larger than ever, given the constraints derived from the issue of financing the fiscal deficit. Similarly, it has also become difficult to implement a large-scale fiscal policy against the backdrop of the enormous government debt of more than 1,000 trillion yen and the postponement of the additional consumption tax rate hike. In fact, it is still vivid in our memory that the benefits for child rearing households, for which revenues from the consumption tax rate hike had been designed to be appropriated, were suspended. In addition, although the stimulus package of 3.5 trillion yen was decided by the Cabinet at the end of the year, it ended up being lukewarm, keeping an eye on both the economic stimulus measure and the reconstruction of public finance at the same time. In other words, the effects of the already fired first and second arrows will be diluted in 2015, and it is not easy to release any additional first or second arrows, either.

Improving the working conditions in Japan is necessary: From my experience in Australia

If that is the case, what is important after all is the third arrow (growth strategies to stimulate private investments). Although a variety of policy initiatives have been taken so far, few policies have emerged as a decisive measure. In 2015, the promotion of more specific growth strategies as the third arrow will be essential for the growth of the Japanese economy, and it will have a significant impact on sustainable economic growth beyond this year. Although examples of the third arrow include deregulation and structural reforms, since I started working in Australia and have seen firsthand the actual state of many women playing an active role in their workplace while raising children, I have realized once again that some of its important elements are raising the labor participation rate of women and taking measures against the low birth rate. I have come to feel that the improvement of working conditions will also play a major role for that purpose, and I would like to introduce some episodes that have influenced me. Although this may be a simple general opinion as my specialty is financial economics, I hope that it is close to the public's viewpoint.

In March 2014, I began teaching at the Crawford School of Public Policy, Australian National University (ANU). ANU is the only national university in Australia located in Canberra, the capital city. I had never lived in Australia, not to mention Canberra, before transferring to ANU, but what impressed me the most when I came to Canberra was the strong emphasis placed on work-life balance (WLB). In fact, what we were told first at an orientation for new employees at ANU was "not to work too hard." Although I was a little confused and discouraged as I was enthusiastic about teaching at ANU after moving to a new country, it did not mean that I was allowed to be negligent of my job, of course. It meant that I had to control my workload appropriately to realize WLB. This is because having a fulfilling life by placing emphasis on family and private life will improve efficiency and, in turn, the outcome of work. Placing emphasis on WLB will also create a better environment for women to work while raising children.

Related to this issue, I was also surprised to see that stores and restaurants close early. There is a large shopping mall about a five-minute drive from my house in Canberra. I thought that it would be busy even at night as it was a shopping mall in the capital city, but I was completely wrong. On every weekday except for Fridays, most stores close at 5:00 p.m. On Saturdays and Sundays, they close even earlier, with most stores closing at 4:00 p.m. on Sundays. One of the reasons for this is the high minimum wage in Australia. The minimum wage in Australia is more than $16, and the labor cost for overtime work appears to be even higher. As a result, closing early has become the best choice for many stores. Of course, there may be some adverse effects of the high minimum wage, but there is no doubt that the minimum wage limits the working hours of workers and plays a part in realizing WLB and raising the labor participation rate of women. In fact, since the minimum wage is this high, the opportunity cost of not working becomes high, and therefore, participation in the labor market is the best alternative for many people.

In addition, the employment pattern is also very flexible. In fact, many employees at ANU go home at 2:00 p.m. This is because they need to go and pick up their children as lessons finish at 3:00 p.m. at many elementary schools. Although many of those who go home at 2:00 p.m. are women, I have noticed that there are also many men when I happen to go and pick up my kid at the elementary school. Of course, some of them may go back to work afterward, but I have the impression that they are able to balance child-rearing with work because such a flexible employment pattern is being used effectively.


Increasing the labor participation rate of women and measures against the declining birth rate are important elements of the third arrow of Abenomics. Although there is no doubt that reducing the number of children waiting for nursery school openings and the transfer of income to families with small children are important policies, I believe that it is also important to take into account not only policies based on the current working environment, but also the improvement of working conditions and flexible employment patterns, as I observe in Australia, in order to realize the sustainable increase in the labor participation of women and the birth rate. As mentioned earlier, I have written what I experience in Australia in this column. However, labor economists and sociologists in Japan appear to be raising similar points (Note).

In any case, there is no doubt that 2015 will be an important year for the Japanese economy. I hope that it will be a productive one.

January 6, 2015

January 21, 2015

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