PM Shinzo Abe may be gone, but 'Abenomics' will stay on in Japan

Shinzo Abe may be gone, but Abenomics will stay on. The long-serving prime minister of Japan resigned on Friday. Two of the three arrows of his eponymous reforms are well established. The third, the growth arrow, has flown less high. The next prime minister will find it hard to get over the challenges of the current pandemic and long-term demographic trends.

A longstanding chronic inflammatory disease left the 65-year-old Abe unable to do the job. Although two recent hospital visits had fanned rumours of a resignation, reports of an imminent announcement sent Japan's benchmark stock index down over 2 per cent. The yen strengthened too. Those moves suggest that investors fear Abe’s successor will bring less growth and more deflation.

Such concerns look exaggerated, or at least premature. The current momentum of the monetary and fiscal arrows of Abenomics is too strong for a mid-flight correction.

Central bank boss Haruhiko Kuroda will probably stay the expansionary course on yield-curve control and negative interest rates. Fiscally, the next government will have no reason to reverse Abe’s massive stimulus package, equivalent to 40 per cent of GDP.