Japanese Prime Minister Shinzo Abe speaks at his official residence in Tokyo on Feb. 25, 2015.Shizuo Kambayashi/The Associated Press
As he strolls through Tokyo's gleaming financial district, Satoaki Nishimura has good reasons to feel optimistic about the world's third-largest economy. He says sales are up at the big insurance company he works for, Japanese stocks are soaring and the economy seems to be doing better for the first time in decades under Prime Minister Shinzo Abe's so-called "Abenomics" growth strategy.
"Abenomics is working," says Mr. Nishimura, who adds that insurance is the first thing people tend to cut when times are tough, and generally the last thing they buy when things start to improve – an indication that Japan is well on its way again.
But although many people like Mr. Nishimura in central Tokyo are benefiting from this tentative rise in growth, new data released Friday reinforced the brittle, two-tiered nature of Japan's gradual economic recovery. Japan's industrial output rose 4 per cent in January, the highest jump in nearly four years, driven by Japanese exporters who have benefited from the U.S. economic recovery as well as Mr. Abe's deliberate weakening of the yen, which has fallen 8.5 per cent against the U.S. dollar.
At the same time, retail sales fell 1.3 per cent and household spending dropped a dramatic 5.1 per cent – the tenth consecutive month of declines, the result of inflation arriving without a corresponding rise in wages. Inflation, which the Bank of Japan hopes to push up to 2 per cent by printing reams of money, pushed consumer prices up 2.2 per cent. But the central bank's main inflation figure – which excludes the effect of a sales-tax increase – fell back to 0.2 per cent, far below target, largely because of plunging oil prices at a time when Japan's nuclear reactors are all shut down.
Mr. Abe has been desperately trying to reverse the two decades of deflation and weak economic growth that followed the burst of the country's bubble-fuelled economy in 1990. His administration launched unprecedented fiscal stimulus and embarked on an ambitious – and polarizing – implementation of radical structural reforms, which are targeting everything from corporate governance to agriculture.
Although far from universally acclaimed, many mainstream observers believe Mr. Abe's policies – or at least his determined focus on implementation in a stabilized political environment – are having a meaningful impact on Japan's economy.
"Since Mr. Abe took power we've seen concrete results from Abenomics, and we also see the results in these numbers," says Kiyoshi Tanigawa, who is in charge of formulating growth strategies at the powerful Japan Business Federation, or Keidanren, which represents more than 1,300 Japanese companies, including some of its largest.
"Of course, there are some weaknesses in consumption that we see in Japan," Mr. Tanigawa added. "But we think we need to push forward with reforms."
Because of Mr. Abe's efforts, corporate profits are rising and the Tokyo Stock Price Index has surged 51 per cent since the Bank of Japan began its monetary easing in 2013. But stocks are not widely held in Japan, where many have their investments in government bonds. And many ordinary citizens have been left embittered by policies they think benefit only a select few. They are also fearful of many of Mr. Abe's attempt to radically reorganize a society that will likely see the retirement age pushed back to 65 and social services cut in order to deal with the government's massive debt – which is now 250 per cent of GDP.
Many economists think Mr. Abe's efforts are necessary to end deflation and deal with the huge demographic challenges of Japan's rapidly aging – and shrinking – population. But for many, the changes have come without any benefit, and have discouraged many from spending the way Mr. Abe wants them to.
"We haven't seen any results from Abenomics," says Kazou Noguchi, a 65-year-old who owns a small fruit shop in northeastern Tokyo and buys from a local wholesale market. "Abe is only doing this for big business leaders, not for people like us. You can see that the market has lost its liveliness. The money isn't circulating."
As Japanese companies and unions prepare to enter their annual "Spring Offensive" salary negotiations, many observers are waiting to see to what extent Japan Inc. plays along with Mr. Abe, who has personally pleaded with CEOs to raise wages and create a virtuous circle of investment that would lead to a sustained recovery. Although some major Japanese corporations with exposure to international markets are likely to follow Mr. Abe's advice, the majority of Japanese workers are employed by smaller firms with less than 1,000 employees – some of which only have exposure to the sluggish domestic economy.
For two businessmen from the Japanese city of Toyama, talk of wage increases is bittersweet. Visiting Tokyo on business, they said they had both gotten wage increases recently – but that this only came about after their wages had already been cut back. The raises, consequently, meant they are now earning exactly what they did before, but in an economy where prices are higher.
"Abenomics has not inspired our consumption," said Mr. Hayashi, who only gave his surname. "To be able to feel that, we need wages to be up. But they're not."