Abe and Abenomics March On


Screenshot 2016-09-05 14.51.24Shinzo Abe has proven he can win elections. Now, reports GR Japan’s Philip Howard, the next big test will be how he tackles the twin issues of economic and constitutional reform

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The House of Councillors election on 10 July further reinforced Prime Minister Shinzo Abe’s reputation as a serial election winner. He headed back to the Kantei with a spring in his step and talking of a new dimension to Abenomics.

On the morning of 11 July, the Liberal Democratic Party’s (LDP’s) five-seat gain left it with exactly half the seats in the upper house (121 of 242). Within days, two defectors, one a former Cabinet minister with the Democratic Party of Japan, joined the ranks of the LDP, giving it its first outright majority in the House of Councillors since 1989.

The full term of the lower house runs until December 2018, giving Abe a long, potentially election-free period and an unusually secure platform for a Japanese Prime Minister. For the first time in 30 years, senior LDP figures are seeking to bypass the LDP’s rules limiting the party leader to two three-year terms so that Abe can remain at the helm beyond the end of his second term, in September 2018, and extend his premiership up to, and perhaps beyond, the 2020 Tokyo Olympics.

The largest opposition party, the Democratic Party (DP), did not manage to break its declining trend – it has seen its representation in the Diet shrink at every national election since 2009. The party again failed either to espouse a cohesive alternative to Abenomics or to land punches, despite glaring questions over the impact of Abenomics and public dissatisfaction with the government on issues from national security reform to the restoration of nuclear power and ratification of the Trans-Pacific Partnership (TPP) agreement.

The election makes it clear there is currently only one show in town, handing Abe an unprecedented opportunity to move forward with his two top priorities: economic revitalization through reflation and structural reform; and revision of Japan’s US-written constitution.

Economic focus

There should be little doubt that Abe will first prioritize and refocus on the economy, as revision of the constitution is a much harder task, requiring time and political capital. The LDP has written its own draft constitution, but there is not yet a consensus between it and the three other pro-revision parties over the direction constitutional revision should take, and it is not clear whether any specific revisions are backed by a majority of the electorate. For Abe, stimulating the economy is an easier place to begin, and will give him the political space to work on the constitution later.

Cabinet and LDP leadership reshuffles on 3 August signaled continuity and stability while refocusing on some of Japan’s economic structural issues. Yoshihide Suga stays on as Chief Cabinet Secretary, as do the ministers for finance, foreign affairs, internal affairs and communications and many others. Former LDP Policy Chief, Tomomi Inada, a strident advocate of constitutional reform, is the new Minister of Defense, while Katsunobu Kato, who retains his post as Minister for the Dynamic Engagement of All Citizens, is additionally assigned a newly-created position, “Minister in charge of Working Style Reform” – indicating an increased priority for labor market reforms.

Big numbers

To emphasize the focus on economic revitalization, Abe announced a stimulus package with an eye-popping headline total of ¥28 trillion (US$280 billion). Although the actual amount of new money spent or lent will be closer to “just” ¥13 trillion, to be disbursed over several years, it is still the second-largest in Japan’s history. Two separate packages being allocated in a matter of weeks, each worth billions of dollars, mean the ministries will be working hard in coming months adding substance to the policy outlines – a huge opportunity for businesses that are well plugged in to government.

In addition to generous welfare payments to low earners, priority sectors for spending include infrastructure (notably loans for the development of a magnetic levitation train from Tokyo to Osaka), tourism, agriculture and information and communications technology (ICT) – including the sharing economy, Artificial Intelligence (AI), the Internet of Things (IoT), open innovation, cyber-security and Big Data. It could be an opportune time to discuss concrete projects with the government in these areas.

The extraordinary Diet session this fall is set to be dominated by the stimulus package, the ratification of the TPP, labor market reform and a bill to legalize integrated resorts containing casinos.

The main policy messages emerging from the election and the cabinet reshuffle have been of political continuity and stability, with a fresh focus on the economy. Abe’s desire to kick-start the Japanese economy is as strong as ever. So expect a lot more of Plan A – Abe and Abenomics.

Philip Howard is Managing Director of GR Japan. He can be contacted at philip.howard@grjapan.com

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Screenshot 2016-09-05 14.30.03This article appeared in an eight page special report produced in association with GR Japan. Click here to download the report