Shinzo Abe has often framed his economic vision as a “three-arrow” policy package: a consolidation of fiscal stimulus, loose money and structural reforms that together would lift Japan out of its prolonged stagnation. In doing so, the former prime minister drew on the Japanese folk tale of three brothers who were each given an arrow. Separately, their arrows could easily be cut. together, the arrows – and the brothers – were unbreakable. Mr Abe, who was assassinated on Friday, meant the three-arrow reference as an illustration of the unquestionable logic of what has become known as Abenomics. This parable turned out to be remarkably relevant, but not in the way he would have hoped. Opinion: Shinzo Abe has been a strong defender of Japan on the world stage ‘Outraged’ world leaders remember Japan’s Shinzo Abe as ‘dedicated visionary’ Two of his arrows, fired in 2013, hit the house. Massive fiscal stimulus boosted Japan’s growth. Negative interest rates and quantitative easing finally defeated the persistent deflation caused by the real estate crash of the 1990s. But the third arrow has fallen, with Abe’s government failing to fully reverse the effects of an aging population in reducing productivity. And, as the parable implies, two out of three arrows are not enough – a lesson that other countries, including Canada, should heed. According to David Edgington, emeritus professor at the University of British Columbia and former director of the school’s Center for Japan Studies, Mr. Abe’s policies have failed to boost real wages as deflation gave way to higher prices. “While inflation has picked up a bit, most of the extra cash put into government bonds by the Bank of Japan has gone into the stock market,” he said, adding that the country has become a much more unequal society under Abenomics. But there is no doubt that Mr. Abe faced a monumental economic challenge when he returned to power in 2012. Japan’s economy was at a standstill in 2011. Prices were falling, with a deflation rate of 0.27 percent. And GDP growth had stabilized at 0%. Against this backdrop, Mr. Abe sought to shock Japan’s economy back to life. In the same way that he pitched his economic policy to the Japanese people by tapping into the country’s folklore, Mr. Abe embraced Western-style craftsmanship to promote Japan’s revival to the world: “Buy my Abenomics,” he urged during of a speech at the New York Stock Exchange in 2013. As a mix of economic policy measures, Abenomics was actually quite conventional. The idea of ​​using monetary and fiscal policy levers to avoid deflation while pursuing a promise of supply-side reforms aimed at shifting labor and capital to more productive sectors of the economy is not radical thinking in most developed countries. But the policies marked a sharp break from the Japanese economic orthodoxy that prevailed in the two previous decades before Mr. Abe began his second term. Most crucially, the Bank of Japan had long argued that deflation was largely beyond its control, a byproduct of an aging population, and that the best it could do was to provide a supportive interest rate environment, while the government did the heavy lifting of stimulus Japan’s real growth potential. Under Abenomics and new Bank of Japan governor Haruhiko Kuroda, the central bank has embarked on an era of unprecedented easing. It approved, for the first time, an inflation target of 2%. And it injected liquidity into the economy through quantitative easing, introduced negative interest rates and declared its willingness to let inflation exceed its target. (All measures, by the way, that many of the world’s major central banks eventually adopted.) “For years you had reformers in Japan banging on the walls and pointing to things that American and European economists were saying, without success,” said Tobias Harris, a Washington-based Japan analyst and author The Iconoclasta biography of Mr. Abe published in 2020; “Abe ended up being a vehicle for these outsiders who were looking for someone who could convey their ideas on fighting deflation.” By the time Mr. Abe stepped down in 2020, citing health issues, Abenomics had produced decidedly mixed results for Japan’s economy. Prices initially responded well to the Bank of Japan’s aggressive policies, with inflation reaching 3.7% in 2014 as the country enjoyed record employment. However, an increase in Japan’s consumption tax that year caused a decrease in spending and sent the country into recession. It also cost the government and central bank credibility in their fight against deflation. While inflation remained largely positive before the pandemic, it has never again hit the bank’s target, rarely rising above 1 percent. Nor were the supply-side reforms promised by Abenomics many. He did liberalize the country’s electricity market and reinstate the Trans-Pacific Partnership trade deal, but stopped short of deeper changes. “Abe has been able to offer a lot of carrots to corporate Japan, but he’s always been reluctant to use sticks to try to encourage them to change their behavior in ways that advance his policy goals,” Mr. Harris said. That said, Mr. Harris believes that Abenomics has brought about a lasting philosophical change on the part of the Japanese government. On the global trade front, the country is willing to play a leader in integration that it was not willing to do before. But Japan’s structural problems are not unique. Deflation concerns are countered by massive fiscal and monetary stimulus. Persistently sluggish productivity growth and increasing pressure from an aging population. This not only describes Japan, but also Canada less than two years ago. Deflation, at least, proved a fleeting concern as inflation soared in 2021 and this year. However, productivity remains a central challenge for Canada, particularly as baby boomers move fully into retirement. Trevor Kennedy, vice-president of trade and international policy at the Business Council of Canada, said every economy in the world, including ours, can learn from Japan’s experience with Abenomics. “Actually we should all be paying attention to Japan, including how it is managing an aging population,” he said. “We could all face a similar future, certainly demographically.” In the most recent federal budget, the Canadian government presented a comforting picture of long-term debt reduction. But this scenario is based on a sharp and sustained increase in productivity that, so far, is not supported by any significant policy change. In a wake of Abenomics, the federal Liberals have run significant deficits since they took office, continuing into 2022 and beyond, even though the economy is clearly overheating. At present, however, there is no indication of what kind of broad-based tax increases Japan will bring in to reduce its national debt. Ottawa strengthened immigration targets and laid the groundwork for national subsidized child care. Both of these measures will help strengthen the workforce, although their impact on productivity is less clear. On these two fronts, Canada has surpassed Japan. But there is one arrow, at least, that is flying in Japan but remains stuck in Canada’s quiver: a concerted push to keep older workers in the workforce. One of the first moves the federal Liberals made when they took office in 2015 was to cancel the planned gradual increase in eligibility for federal old-age benefits to 67 from 65, starting in 2023. This policy would reduce both the fiscal pressures in Ottawa as much as it encouraged older Canadians to stay in the workplace. Japan, belatedly, is moving in the opposite direction. The official retirement age for civil servants will begin to rise gradually to 65 from 60 by 2031, starting next year. The retirement age for private sector workers is effectively moving to 70, and there are plans to cut benefits for 60- to 64-year-olds. All these changes happen relatively quickly. Workers in their 50s and 60s, not just those at the start of their working lives, are seeing the terms of their retirement rewritten. This could be the most fundamental lesson from Abenomics: The longer the delay, the greater the pain. Your time is valuable. 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