This newfound largesse is thanks to “Abenomics” — Prime Minister Shinzo Abe’s bold economic plan, complete with cheap cash, very low interest rates, deregulation, and ample inflation. So far it appears to be working: In the first quarter, Japan’s $5 trillion economy rose 3.5 percent, and, even more key, this growth was driven by household consumption. Certain forecasts even suggest Japan’s economy could grow faster this year than any other major economy but China’s.
Early returns aside, it’s still hard to tell if this can last. Already the Nikkei, the world’s best-performing stock market for most of 2013, dipped dramatically in late May off news that China’s economy is slowing. Plus, the buoyancy has been limited to the well-to-do. A long-term fix will require an expanded tax base to help the country pay down its huge debts. Companies will have to spread their new wealth to workers by building factories, upping investment, and raising wages.
Yet if the revival continues, Abe will have not only cured much of what ails Japan, he’ll have set a new course forward for the rest of the developed world as well. Policymakers in the United States and Europe will be forced to rethink the recent rush to austerity, and finally take up the advice many economic thinkers gave Japan back in the 1990s: Spend.