Between reflation and redistribution over the past decade, Japan has witnessed two major attempts to escape the grip of economic stagnation and demographic decline. These attempts materialized in two opposing macroeconomic paradigms under Prime Ministers Shinzo Abe and Fumio Kishida. Abe’s Abenomics (2012–2020) was a bold experiment aimed at reflating the Japanese economy through coordinated monetary expansion, flexible fiscal policies and structural reform. It drew global attention for its aggressive use of unconventional monetary policy tools and the narrative cohesion that accompanied its implementation. By contrast, Kishida’s New Capitalism (2021–2024) prioritized stabilizing a fragile society in the immediate aftermath of the Covid-19 pandemic — a crisis that had strained public health systems and disrupted global supply chains, labor markets and geopolitical alignments — placing redistribution and national economic security at the center of its agenda.

Kishida’s resignation in 2024 punctuated a period marked by both continuity and divergence. Given their ideological and strategic differences, each leader’s supporters quickly expressed the perceived shortcomings of the other administration’s approach. Abe’s loyalists criticized Kishida’s lack of urgency on growth and productivity. Kishida supporters highlighted Abenomics’s failure to address inequality and declining household welfare, specifically criticizing the trickle-down effect. In this way, the transition from Abe to Kishida became as much a debate over Japan’s economic priorities as a reflection of shifting political leadership.

This piece undertakes a comparative evaluation of both paradigms across six core dimensions: ideational framework, macroeconomic policy mix, labor and economic outcomes, structural reform, political capacity and global positioning.

Reflation vs. redistribution

Abenomics anchored itself in a clear and cohesive ideational framework that positioned macroeconomic stagnation as a coordination failure, particularly in expectation formation. By recasting deflation as a psychological rather than purely structural phenomenon, Abe mobilized the Bank of Japan (BOJ) and the cabinet to deliver a coherent signal of regime change. This involved not only monetary expansion but also a broader narrative of national economic revival and Japan’s return to global relevance.

Kishida, by contrast, operated within a more fragmented intellectual landscape. His New Capitalism emerged amid escalating geopolitical risks, most notably the US–China rivalry and supply chain disruptions. The framework prioritized resilience and redistribution, placing emphasis on wage growth, household support and economic security. Yet it lacked the forward-looking macroeconomic architecture that defined Abenomics. Instead of altering expectations or creating a transformative growth vision, New Capitalism functioned as a damage control mechanism.

The difference between Abenomics and New Capitalism is a matter of the underlying purpose and narrative coherence each framework aspired to deliver. Abenomics was grounded in a deliberate act of macroeconomic imagination — it redefined Japan’s malaise not as an inevitable byproduct of demographics or global forces, but as a solvable coordination problem. By basing the policy challenge on expectations, Abe’s administration sought to recalibrate the cognitive map of households, firms and investors alike. The coordinated deployment of monetary, fiscal and structural instruments, however uneven in execution, found unity in a singular strategic objective: regime transformation. The goal was both to reassert national confidence and engineer nominal GDP growth.

Dissimilarly, New Capitalism has proven an exercise in incremental resilience-building — a response to fractured supply chains, geopolitical fragmentation and widening income disparities. While the agenda has delivered pragmatic responses to rising inequality and economic insecurity, it has remained reactive rather than aspirational, managing risks rather than reimagining trajectories. New Capitalism lacks policy synthesis: a cohesive framework capable of integrating redistribution with productivity, social protection with innovation and security with dynamism.

As Japan confronts the dual pressures of long-term demographic decline and near-term geopolitical uncertainty, the challenge is to manage the present and, crucially, craft a compelling macroeconomic future.

Monetary and fiscal policy

Abenomics’s centerpiece was a profound institutional experiment. In 2013, Abe appointed Asian Development Bank President Haruhiko Kuroda as Governor of the Bank of Japan. This decision marked a deliberate break from decades of cautious monetary orthodoxy. Kuroda’s arrival ushered in the era of Quantitative and Qualitative Easing (QQE), which was soon followed by Yield Curve Control (YCC).

There are great differences between Japan and the United States. The Federal Reserve began expanding its balance sheet during the global financial crisis of 2007–2008, whereas the Bank of Japan had already started nearly a decade earlier and accelerated purchases markedly after 2012. Together, these policies transformed the BOJ into an unrivaled force in Japanese asset markets. By 2021, its balance sheet had swelled from around 30% of the GDP to nearly 90% — a scale that many observers describe as a de facto monetary regime change.

These measures initially shifted expectations. Asset prices rose, the yen depreciated and inflation expectations rose modestly. The psychological battle against deflation seemed to be turning. But over the medium term, the marginal utility of QQE and YCC declined. Inflation plateaued well below the 2% target while productivity and wage growth remained muted. What began as a high-impact monetary shock therapy — a dramatic break from decades of incrementalism — gradually became a necessary but insufficient background condition.

On the fiscal side, strategic ambivalence typified Abenomics. Early stimulus packages in 2013 and 2016 signaled an intent to support reflationary efforts. Yet these episodic initiatives were often diluted by a return to fiscal orthodoxy. The most visible expression of this was the consumption tax hikes in 2014 and 2019, both implemented during fragile economic recoveries.

By the time Kishida entered office, the Japanese economy was acclimated to this environment of ultra-accommodation and cautious consolidation. He inherited an exhausted monetary landscape and a public increasingly skeptical of grand narratives. Under BOJ Governor Kazuo Ueda, a former academic economist with deep institutional knowledge, the central bank began the slow process of monetary normalization — the process of unwinding unconventional monetary policy measures implemented during times of economic crisis or instability.

The dismantling of YCC and the eventual exit from negative interest rates in 2024 marked a significant technical and symbolic turning point. After more than a decade of extraordinary measures, Japan was stepping back from a permanent emergency.

Kishida’s fiscal initiatives, while more active in some dimensions than Abe’s, lacked strategic cohesion. Policies such as energy subsidies, wage support schemes and selective tax relief were deployed to buffer exogenous shocks, from war-driven inflation to yen depreciation. Yet they were rarely nested in a broader, long-term investment vision. The administration’s New Capitalism framework, while rhetorically ambitious, remained under-specified in execution. This created a fragmented fiscal activism that reacted to pressures without consolidating them into a new growth model.

What unites the two periods, then, is not ideological consistency but structural asymmetry. Abe’s economic program was bold in its monetary dimension but undercut by fiscal conservatism; Kishida’s was more cautious overall, with fiscal tools deployed unevenly and a central bank constrained by the legacy of its own past activism. In both cases, the absence of integrated macroeconomic planning — where fiscal and monetary authorities operate under a shared mandate — has restricted Japan’s ability to shift from stabilization to dynamism.

For policymakers and central bankers elsewhere, Japan’s experience offers a complex lesson: Monetary policy, no matter how unconventional, cannot substitute for fiscal strategy, nor can episodic fiscal interventions replace structural investment. Policy frameworks require policy complementarity, institutional alignment and a clear, sustained narrative that links short-term demand management with long-term transformation.

The world is now entering its own phase of post-pandemic normalization — where inflation has returned, interest rates are rising and fiscal space is narrowing. In light of this, Japan’s journey stands as both a warning and a guide. Shock therapy may make headlines, but without coordinated follow-through, it rarely changes the story.

Table 1: Growth and inflation outcomes

This table illustrates that Abe’s policies succeeded in improving asset markets and labor participation, especially among women and the elderly. However, they failed to ignite self-sustaining inflation or wage growth. Kishida benefited from imported inflation and labor shortages but struggled to convert these tailwinds into durable real wage or productivity gains.

Economic outcomes and labor market dynamics

The empirical legacy of Abe’s tenure is marked by a paradox: While aggregate indicators pointed to a recovery in headline growth and a tightening labor market, the deeper structural dynamics of the Japanese economy remained largely unchanged. Most notably, labor force participation increased significantly, driven in part by the greater inclusion of women and older workers, groups historically underutilized in the postwar employment model. This expansion reflected the success of targeted activation policies and demographic pressure, but it also masked a more nuanced failure. The quantitative gains in employment were not accompanied by qualitative improvements in labor conditions or productivity.

Despite the tightening labor market, wage growth remained subdued, particularly among Japan’s growing share of non-regular and precariously employed workers. Service-sector productivity, long the Achilles’ heel of the Japanese economy, continued to lag behind international benchmarks. Meanwhile, inflation expectations, though initially nudged upward by aggressive monetary policy, failed to gain lasting traction. They remained consistently below the 2% target, underscoring the structural inertia in Japan’s nominal dynamics.

Under Kishida, nominal wages did rise more visibly, supported by union wage rounds and policy measures encouraging income growth. However, a surge in inflation — largely imported via energy and commodity shocks — rapidly offset these gains, resulting in declining real wages, especially for lower-income households. Despite the Kishida administration’s deployment of subsidies, wage incentives and labor market interventions, it struggled to generate genuine purchasing power or foster durable improvements in total factor productivity.

In effect, both administrations achieved only partial, asymmetric successes in altering the structural underpinnings of Japan’s post-bubble economy. Abe’s policies succeeded in mobilizing latent labor supply but failed to convert higher participation into higher productivity or wage dynamism. Kishida emphasized redistribution and cost-of-living support but was unable to anchor that redistribution in a framework of sustainable, value-added employment creation. Neither administration fully escaped the gravitational pull of Japan’s long-standing growth constraints: demographic drag, weak service productivity and rigid labor segmentation.

The broader implication is clear: Without a coordinated supply-side agenda that links labor activation to innovation and firm-level competitiveness, policies that focus solely on participation or redistribution risk becoming self-limiting. Structural transformation, not just cyclical management, remains the unfinished business of Japanese macroeconomic policy.

Structural reform and institutional constraints

The third arrow of Abenomics, structural reform, was always the most politically sensitive and operationally elusive. While the Abe administration outlined an ambitious agenda encompassing labor market liberalization, corporate governance reform, agricultural modernization and the promotion of female labor force participation, implementation fell short of rhetoric. The most tangible achievements came in the realm of corporate governance, where the introduction of the Stewardship and Corporate Governance Codes improved transparency, accountability and investor engagement.

However, these gains were uneven and largely confined to listed firms. The deeper structural impediments — labor market dualism, seniority-based wage systems and lifetime employment guarantees — remained largely untouched. Confronting these institutional legacies would have required not only political capital but also a willingness to disrupt the postwar social contract that underpins Japan’s employment system. In the end, the easier politics of monetary expansion subsumed the reform narrative.

Kishida, on the other hand, largely sidestepped the structural reform agenda. His administration favored targeted interventions aimed at industrial resilience and digital modernization — support for startups, investment in semiconductor capacity and the digitization of public services. While these initiatives align with contemporary challenges such as supply-chain security and technological sovereignty, they were fragmented, underfunded and weakly institutionalized.

Regulatory reform advanced only marginally, immigration policy remains tightly constrained despite mounting labor shortages and investment in human capital, particularly in tertiary education, research and vocational retraining, continues to lag OECD benchmarks. Instead of pursuing systemic transformation, Kishida adopted a portfolio approach of microeconomic adjustments, each with limited multiplier effects and no overarching institutional logic.

The difference between the two approaches is one of breadth without depth versus caution without consequence. Abe envisioned a broad transformation of Japan’s economic architecture but lacked the institutional leverage and political will to deliver it. Kishida was more constrained in scope and more technocratic in execution, but no more successful in reshaping the underlying structure of the Japanese economy.

Ultimately, both administrations confronted the same dilemma: Structural reform in Japan is not primarily a technical challenge but a political and institutional one, embedded in legacy norms, vested interests and intergenerational expectations. Until those constraints are explicitly addressed, reform initiatives will likely remain episodic and insufficient.

Political capacity and governance style

Political leadership played a decisive role in shaping the effectiveness of each economic strategy. Abe governed with exceptional political capital, sustained through consistent electoral victories and high approval ratings. His ability to centralize policy coordination within the Prime Minister’s Office allowed for rapid decision-making and a consistent narrative. However, this centralization did not translate into structural breakthroughs, as intra-party factions and vested interests remained formidable obstacles.

By contrast, Kishida operated with a weaker factional base and was burdened by the need to navigate multiple exogenous crises, including the pandemic aftermath, global inflation and regional security tensions. His style emphasized consensus and bureaucratic continuity rather than top-down leadership. As a result, his policy implementation often appeared reactive rather than strategic.

Table 2: Summary table: Shinzo Abe vs. Fumio Kishida

The divergence in political capacity underscores a core conundrum: Even with strong leadership, entrenched institutions and interest groups in Japan significantly constrain the scope for transformative reform. Conversely, technocratic governance without political capital results in managerial drift.

Global economic positioning and strategic realignment

Abe’s foreign economic policy represented a decisive turn toward strategic internationalism. His administration recognized that it could not decouple Japan’s economic revival from its external environment. Therefore, it sought to reposition the country as a proactive shaper of regional and global economic norms.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership — salvaged and advanced after the US withdrew from the original Trans-Pacific Partnership — became a symbol of Japan’s willingness to assume leadership in defending a rules-based trade order. Abe also deepened Japan’s engagement in infrastructure diplomacy, particularly through partnerships with India and the Association of Southeast Asian Nations, offering alternatives to China’s Belt and Road Initiative. These initiatives projected Japan as a normative power committed to openness, multilateralism and strategic connectivity, even as many of the necessary domestic structural reforms underpinning long-term competitiveness remained incomplete.

Kishida inherited a fundamentally altered geopolitical and economic context. In the wake of COVID-19, the Ukraine war and intensifying US–China strategic rivalry, Japan’s international economic strategy shifted from liberal expansionism to defensive securitization. The passage of the 2022 Economic Security Promotion Act marked a watershed moment, institutionalizing a national strategy around supply chain resilience, protection of critical technologies and data governance. Japan’s alignment with US and European efforts to reindustrialize and reduce strategic dependencies was clear, particularly in sectors like semiconductors, rare earths and quantum technologies.

However, the domestic policy apparatus struggled to match ambition with execution. Coordination between ministries and industries was uneven and key projects — such as semiconductor fabrication and battery development — faced financing bottlenecks, labor shortages and regulatory friction. While the conceptual pivot toward economic security was timely, its operationalization revealed a thin institutional capacity for whole-of-government mobilization.

Where Abe’s strategy was premised on exporting liberal norms and projecting influence through economic integration, Kishida’s has centered on importing resilience frameworks and adapting to a world of geopolitical risk. Yet in both cases, a common limitation persists: The domestic economic foundation necessary to sustain Japan’s global leadership remains underpowered. Abe’s external activism was not sufficiently anchored by internal reform, while Kishida’s defensive realignment lacked a comprehensive growth strategy that could translate security policy into renewed economic dynamism.

The result is a tension between external ambition and internal inertia. Japan has demonstrated an impressive ability to adapt rhetorically and diplomatically to evolving global economic challenges, but the institutional mechanisms for translating strategy into structural advantage — particularly in industrial policy, innovation systems and human capital development — remain fragmented. As geopolitical fragmentation deepens, the challenge for Japanese economic statecraft is to bridge the gap between strategic positioning abroad and institutional transformation at home. This task will define the sustainability of its role in the emerging global order.

Divergent strategies, shared constraints

Despite contrasting ideational frameworks, Abenomics and New Capitalism ultimately converged in their limitations. Abe offered a sweeping narrative of national revival, recasting macroeconomic malaise as a problem of expectations and regime inertia. His policies, however uneven in execution, were driven by a strategic attempt to realign Japan’s economic psychology, restore international prestige and project confidence through coordinated monetary expansion, trade diplomacy and institutional signaling. Yet a failure to realign structural institutions — particularly in labor markets, fiscal governance and innovation policy — undercut this ambition, endangering the effort to diminish returns.

Conversely, Kishida pursued a more technocratic and adaptive approach, shaped by the imperatives of economic resilience, geopolitical instability and social equity. His administration emphasized redistribution and economic security, deploying targeted measures such as energy subsidies, wage incentives and industrial support schemes. Though lacking the overarching ideological clarity of Abenomics, New Capitalism reflected an effort to balance economic management with political feasibility, particularly in an era marked by pandemic recovery, global supply chain reconfiguration and war-induced inflationary shocks. Kishida’s approach, though often criticized for its incrementalism, demonstrated institutional sensitivity and pragmatic responsiveness to both domestic vulnerabilities and international expectations.

The divergence in public and scholarly evaluations of Abe and Kishida reflects not only their policy choices but their political leadership styles and normative orientations. Economists often credit Abe with redefining Japan’s economic and diplomatic posture, boldly committing to controversial reforms and reasserting Japan’s role in global governance. His foreign economic strategy projected confidence and ideological clarity.

Conversely, Kishida was more cautious and consensus-driven, with decision-making grounded in what might be described as “median-voter pragmatism.” His rapid alignment with the West following Russia’s invasion of Ukraine, including early condemnations of war crimes and decisive sanctions, elevated Japan’s global profile and reaffirmed its position in the liberal international order. Simultaneously, it underscored a leadership style oriented around collective security and democratic solidarity.

In short, Abe is more positively evaluated not solely because of economic outcomes, but because he articulated a compelling vision of national trajectory — one that resonated with both domestic constituencies and international allies. Kishida, though often more subdued in rhetorical style, proved effective in managing complexity, responding to multifaceted crises with political caution and administrative competence. His economic identity project may have been less defined, but it reflected an earnest attempt to govern through uncertainty rather than through grand design.

Reflation alone has proven insufficient in revitalizing long-term productivity or addressing deep-seated socioeconomic imbalances. The next phase of economic strategy must focus on structural reform that accelerates business activity while centering the interests of those who work within it, not merely those who own it. Policymakers must design regulatory changes to empower innovation and enterprise.

The underlying challenge is institutional. Japan’s postwar system — a parliamentary democracy under a constitutional monarchy — evolved into a unique model that combined state-guided capitalism with social safety nets, once serving as a foundation for stability, rapid economic growth and social cohesion. Today, however, Japan struggles to reconcile equity with dynamism, often defaulting to policies that preserve the status quo rather than addressing deeper structural challenges. Unless Japan forges a model that links inclusive growth with institutional accountability and worker-centered modernization, its economic policy risks devolving into symbolic gestures and short-term fixes, which would be insufficient for navigating the structural, demographic and geopolitical transitions of the current era.

[Lee Thompson-Kolar edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.