Koichi Hamada On ‘Abenomics,’ The Asia-Pacific Security Situation, And Inflation

Koichi Hamada Was An Economic Advisor To Former Japanese Prime Minister Shinzo Abe And Is Currently Tuntex Professor Emeritus Of Economics At Yale University. He Has Been Described By Nikkei Asia As Part Of ‘The Intellectual Muscle Behind Japan's Prime Minister’.

By Aiden Singh, February 24, 2023

Advising Prime Minister Shinzo Abe and Inventing ‘Abenomics’

Aiden Singh: When did you begin advising Prime Minister Abe?

Koichi Hamada: During his second term. His first prime ministership was very short. But in 2012 he started his second tenure and I joined near the beginning of that term. 

Aiden Singh: The media has called you the inventor of ‘Abenomics.’ Would you agree with this characterization that you were the main advisor on this set of policies?

Koichi Hamada: I don’t think that’s fair. There is an economist called Kikuo Iwata who later became the Vice Governor of the Bank of Japan. And he had the idea of doing monetary stimulus consistently. And Prime Minister Abe also had a close advisor - Etsuro Honda. I think my addition to ‘Abenomics’ is generally, I was a critic against the former more austere macroeconomic policy. But I don’t want to say I am the basic originator of ‘Abenomics.’ One contribution which I did make was recommending Mr. Haruhiko Kuroda to lead the BOJ (Bank of Japan). And I’ve mostly agreed with Mr. Kuroda’s policies, until recently where I believe the Yen has gotten too cheap.

Aiden Singh: What was ‘Abenomics’ & did it succeed in its objectives?

Koichi Hamada: Abenomics was a set of policies meant to cope with excess appreciation of the Yen and to recover employment in Japan. During the first half of the post-war period, the Yen had either a fixed exchange rate or a flexible exchange but with some advantage given to Japanese industry. So Japan experienced miraculous growth. So from 1945-1985 the exchange rate of the Yen was, generally, easier for Japanese industry. And mostly during this time, Japanese exporting industries had some tailwinds.

But other major countries didn’t like it. So there was a big fight involving the U.S., Germany, France, England, and Japan. The former countries wanted the Yen to appreciate. And they gathered in 1985 at the Plaza Hotel in New York to make the exchange rate higher for Japan, and they succeeded. After that, Japanese industrial growth came down and production and employment were negatively affected. Growth rates where consistently low after 1990 or so. There were many things that affected this: population growth slowed and the technological gap between Japan and other countries narrowed. But it seems the exchange rate was too high [for Japan post-1985].

One of the major reasons why Prime Minister Abe made use of rather aggressive monetary expansion - quantitative easing - was to halt the exchange rate appreciation. The exchange rate appreciation halted after Abe - that is, 2012. 

During this period, Japanese employment increased, producing an estimated 5 million jobs (though there are smaller estimates out there). Particularly female employment increased by 3 million jobs during this period. And Mr. Abe increased the number of part-time workers, female workers, and young workers in full-time jobs. And when, unfortunately, Abe’s funeral took place in Tokyo, it was attended by many young people who benefited who went to pay tribute to Mr. Abe. So using more aggressive monetary policy and stopping the over-appreciating of the Yen created employment. 

So Abenomics did work very well. And I am happy to have engaged as one of the supporters of Japanese job creation.

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The Asia-Pacific Security Situation

Aiden Singh: Can A Policy of American ‘Strategic Ambiguity’ Deter A Chinese Invasion Of Taiwan?

Koichi Hamada: This is a questionable strategy - at least, from the perspective of Japan.

This question was asked to former Prime Minister Shinzo Abe, who was unfortunately assassinated last year. He answered that if China wanted to invade Taiwan, the difference in military forces is quite extreme and the intention of China to unify Taiwan is quite strong, so unless the U.S. expresses its own intention to defend Taiwan definitely, it wouldn’t work as a constraining force.

Of course, national politics has many layers in the United States. So it may be useful for some groups in the U.S. to keep some ambiguity about defending Taiwan. But that’s another question. 

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