By Craig Mark
Despite Prime Minister Shinzo Abe’s political success in Japanese politics, Japan’s economy remains to be stagnant. This article discusses the impact of Abe’s political comeback in restoring Japan’s economic growth and overcoming its geostrategic challenges.
Japan’s Prime Minister Shinzo Abe led his conservative Liberal Democratic Party (LDP) to another decisive victory in the Upper House elections held last July, making him one of the most politically successful leaders of the democratic world in recent times. In office since December 2012, the LDP (with its ruling coalition partner the Komeito Party, and aligned independents) can now effectively command a two-thirds majority vote in both Houses of the Diet, Japan’s parliament. The win in the Upper House of Councillors was a particular vindication for Abe, since he was driven to step down from his first term as Prime Minister in 2007, after barely a year in office, when the scandal-ridden LDP suffered a harsh Upper House election defeat. But despite Abe’s latest political success, the stagnant Japanese economy remains a stubborn obstacle that defies the efforts of the government’s policy approach, marketed as “Abenomics”.
Following the July election, Abe announced a ¥28 trillion (US$270 billion) stimulus package in August, based around infrastructure spending, and more targeted welfare spending, in the latest series of ongoing efforts to boost economic growth and reverse deflationary stagnation. The package also includes record defence spending, which has been raised in every year of Abe’s government, to reach ¥5.16 trillion for FY2017.1 While this further deepens Japan’s public debt, now approaching 230% of GDP, the effect of continuous stimulus spending has at least recently kept the economy out of recession, as Abenomics rejects the failed path of austerity. Growth for the June 2016 quarter was only 0.2%, with the annualised growth rate at 0.7%. The CPI fell -0.5% for August, the sixth monthly decline in a row, showing the danger of the return of entrenched deflation.2
Abenomics can do little to solve Japan’s structural demographic problem of an aging and declining population. Abe’s government has expressed its aim to increase the prominence of women in the workforce, but they continue to face chauvinistic cultural barriers in many areas of employment. The proportion of women returning to work after having their first child has only just now exceeded 50% for the first time, while only 2.65% of men took paternity leave in FY2015. Income inequality in Japan continues to worsen, as around one in six Japanese children live in poverty, particularly in families headed by single mothers.3
Tax credits for families and plans for more child care places are part of the Abe government’s strategy to lift the fertility rate from 1.4 to 1.8 by 2025, but this is overly ambitious, as are the inflation and economic growth rate targets of 2% each by 2020. The negative interest rates implemented by the Bank of Japan (BoJ) since January shows the desperation of its monetary policy. Its Quantitative Easing (QE) of around ¥80 trillion per annum may expand yet again, to try and reduce the yen. The BoJ has so far bought up to ¥450 trillion worth of assets, particularly government bonds.4
Karōshi and Other Failures of Corporate Japan
Corporate Japan bears considerable responsibility for the sluggish state of the economy, by sitting on huge cash reserves. Utilising these massive cash deposits to raise base wage rates, and offer permanent, full-time jobs is key to restoring sustainable growth and inflation, as this would give workers more security and higher spending capacity, and so boost aggregate demand. Abe has been urging companies to do so, most recently in his policy speech opening the autumn session of the Diet. He called for a minimum raise of 25 yen per hour in the upcoming spring wage negotiations with labour unions, but large corporations have generally been reluctant to grant even such a minuscule increase. It will require vigorous reform of labour laws to impel businesses to improve wages, conditions and overall job security for workers; the first Cabinet white paper on karōshi, death from overwork, considered a fifth of Japanese workers are at risk. The unemployment rate was 3.1% in August, but this fairly low level is mainly due to the shrinking pool of available labour in the smaller and older populace, rather than due to any robust economic activity.5
If QE fails to prevent the yen’s value going much beyond parity with the US dollar, such a hit to the competitiveness of Japanese exports would threaten another recession. Japan has recently enjoyed record tourist numbers, especially from China, but a rising yen could threaten this current boom. The electronics industry in particular has recently faced a series of accounting scandals and foreign takeovers, continuing its relative decline, with increased competition from Korean, Taiwanese and Chinese firms. The agricultural sector also faces greater competition, and will be hoping the multilateral Trans-Pacific Partnership (TPP) trade agreement does not go ahead. Legislation to ratify the TPP is due to be introduced in the upcoming Diet session, but this could be moot, if the TPP is blocked in the US Congress. Abe still strongly backs the TPP, if for no other reason than its aim to strengthen America’s geopolitical position in the Pacific to contain a rising China increasing its economic and military strength.
Abe will also continue to press for conclusion of preferential trade agreements with the US and the EU by the end of 2016, although these deadlines could also very well slip by. Japan was at least able to complete an economic partnership agreement with Australia in 2014. The automobile industry remains one of its strongest sectors, and innovations in the IT industry, in areas such as robotics and biomedicine, also have great future potential. However, corporate Japan, with its aging and overwhelmingly male management, still badly needs invigoration overall from younger and more diverse leadership.
The Abe government is also determined to restart Japan’s nuclear reactors, despite widespread public opposition in the wake of the 2011 Fukushima disaster. Abe has been accused by his previous mentor, former Prime Minister Junichiro Koizumi, of lying about the safety of the ongoing clean-up of the wrecked and contaminated Fukushima Daiichi power plant, following the massive Tohoku earthquake and tsunami on March 11, 2011. Abe has been accused of being in the thrall of the nuclear power industry, traditionally one of the influential core corporate support bases for the LDP. This is despite the immense potential of Japan’s renewable energy industry, particularly in wind and thermal power.
In support of the export of nuclear technology overseas, amongst other industries, Abe has been one of Japan’s most travelled Prime Ministers. In his visits to Europe, America, and Australia, he has particularly promoted Japanese exports, investment and development aid to emerging markets in Central Asia,6 the Middle East, Latin America, Africa and South East Asia. There have been some notable setbacks though. Japan failed to secure tenders to build a high-speed rail in Indonesia, losing out to China; and submarines in Australia, losing to France.
Abe’s active foreign policy feeds into his desire for a more assertive defence policy posture, largely aimed at deterring China. Japan’s Self-Defense Forces (SDF) are increasing their tempo of training exercises with the US and Australian military, including naval patrols in the contested South China Sea. Japan is supplying patrol boats to Vietnam and the Philippines, and SDF jet fighters are frequently scrambled to intercept both Chinese and Russian military aircraft encroaching on Japanese airspace.7 SDF missile defences are also often alerted against potential nuclear missile tests by North Korea. The territorial dispute over the Senkaku Islands (claimed as the Daioyus by China), administered by Japan in the East China Sea, remains a potentially dangerous flashpoint, as China continues to send fishing and patrol vessels into its surrounding waters.
In September 2015, the Abe government passed controversial legislation to reinterpret Article 9 of the constitution, to allow the SDF to exercise collective self-defence. More robust rules of engagement for SDF peacekeeping forces in South Sudan are now being implemented, with troops for the next deployment training for a potential combat role, to protect civilians or UN personnel if they come under attack. A new cross-ministry intelligence service is also being expanded. Abe is using the Diet session following the July Upper House election to debate and pursue legislation for even greater constitutional change. Abe and the LDP are determined to press ahead with discussion of its 2012 draft revised constitution in the Diet’s constitutional commissions. They face criticism from the main opposition Democratic Party (DP), the Japanese Communist Party (JCP) and human rights lawyers and academics, that the draft pares back individual civil rights, and grants the government excessive emergency powers. The government will also consider special legislation which would permit Emperor Akihito to abdicate, allowing the frail 84-year old monarch to fulfil his carefully expressed desire to step down from his duties before his death.
The Rise of Renho
The recently elected new leader of the DP, Renho Murata (universally known just as Renho), has sworn to defend the constitution from the Abe government’s proposed amendments. As well as confronting gender bias, being the first female leader of the DP, Renho has also battled prejudice over her parentage, with her father being Taiwanese. Renho and the DP will repeat the strategy attempted in the July Upper House election of coordinating their election campaigning with the smaller opposition parties, particularly the JCP, despite the previous lack of success of such tactics.
In her first major speech to the Diet as Opposition Leader, Renho aggressively attacked Abe’s administration, accusing it of mere sloganeering, while the policies of Abenomics have failed to end deflation and restore growth. She also criticised the performance of the Government Pension Investment Fund, which has suffered a loss of ¥10 trillion over the past fiscal year. Despite such bold beginnings, Renho faces a formidable challenge in rebuilding the demoralised DP into an alternative governing party which can successfully market its appeal to the public with a credible policy agenda. It remains to be seen if she can make any inroads against the prodigious majorities the LDP luxuriously enjoys in both Houses of the Diet.
Renho’s struggle against Abe may last longer than expected. Abe was originally scheduled to step down as Prime Minister by September 2018, when his second three-year term as LDP president expires. However, the LDP’s Headquarters for Party and Political System Reform Implementation has already begun the process of extending terms for the party leadership, which will allow Abe to remain in office beyond 2018. The likely options being discussed by the LDP’s reform committee are either to allow renewal for an extra third term, or remove presidential term limits altogether.8 The LDP hierarchy is aiming to finalise a decision by the end of the year, to be confirmed at the 2017 party conference in March, in time for the scheduled 2018 Lower House election. Such developments will severely annoy and disappoint various LDP faction leaders, who have already been positioning themselves as potential successors to Abe, such as Foreign Minister Fumio Kishida, and Population and Regional Revitalisation Minister Shigeru Ishiba. The hawkish Defense Minister Tomomi Inada, a prominent member of the ultranationalist Shinto organisation Nippon Kaigi (as is Abe and most of his Cabinet), has openly supported the term extension proposal, hoping to eventually succeed Abe as Japan’s first female Prime Minister.
Going early in 2017 would allow Abe to preside over the 2020 Tokyo Olympics (and the preceding 2019 Rugby World Cup), as the next Lower House elections would then be due by 2021, at the latest. When Abe said “See you in Tokyo!” at the closing ceremony for the Rio Olympics, it seems he really meant it.
However, speculation has already emerged among LDP circles over whether Abe will call an early snap election for the Lower House as soon as January 2017, despite the LDP’s ruling coalition already enjoying a two-thirds majority. Abe may thus yet again deploy his favoured strategy of going to an early election, as he did in December 2014, to take advantage of a still weak and unready opposition, under its new untested leader Renho. Going early in 2017 would allow Abe to preside over the 2020 Tokyo Olympics (and the preceding 2019 Rugby World Cup), as the next Lower House elections would then be due by 2021, at the latest. When Abe said “See you in Tokyo!” at the closing ceremony for the Rio Olympics, it seems he really meant it.
About the Author
Dr. Craig Mark is Assistant Professor at the School of Information Environment, Tokyo Denki University. He has also taught Politics and International Relations at Kwansei Gakuin University in Japan, and Macquarie University and the University of New South Wales, in Sydney, Australia. He is the author of The Abe Restoration: Contemporary Japanese Politics and Reformation.
1. Cabinet Public Relations Office, ‘Press Conference by Prime Minister Shinzo Abe’, Wednesday, August 3, 2016, Speeches and Statements by the Prime Minister, Prime Minister of Japan and His Cabinet, at: http://japan.kantei.go.jp/97_abe/statement/201608/1218775_11013.html
2. Bank of Japan, ‘Financial and Economic Statistics Monthly’, September 23, 2016, at: https://www.boj.or.jp/statistics/pub/sk/data/sk4.pdf
3. The Japan Institute for Labor Policy and Training, “Recent Statistical Survey Reports”, July 2016, at: http://www.jil.go.jp/english/estatis/esaikin/2016/documents/e201607.pdf
4. Bank of Japan, ‘Introduction of “Quantitative and Qualitative Monetary Easting with a Negative Interest Rate” ‘, January 29, 2016, at: https://www.boj.or.jp/en/announcements/release_2016/k160129a.pdf
5. Ministry of Internal Affairs and Communications, ‘Labour Force Survey, Monthly Results’ August 2016, at: http://www.stat.go.jp/english/data/roudou/results/month/
6. Cabinet Public Relations Office, ‘Diplomatic Relations’, Prime Minister of Japan and His Cabinet, at: http://japan.kantei.go.jp/97_abe/diplomatic/index.html
7. Ministry of Defense, ‘Statistics on Scrambles during the First Quarter of FY2016’, Joint Staff Press Release, July 5, 2016, at: http://www.mod.go.jp/js/Press/press2016/press_pdf/p20160705_02.pdf
8. Liberal Democratic Party of Japan, ‘Rules for election of President’, at: https://www.jimin.jp/english/the-president/rules/index.html