A reforming Japan can spur regional integration
Simon Tay says Abe has to keep his focus on the economy, not politics
Sunday's election in Japan delivered victory for the Liberal Democratic Party coalition and a clear endorsement for Prime Minister Shinzo Abe, paving the way for bold changes.
Will Abenomics continue? What could a resurgent Japan mean for others in Asia? Optimism is palpable. Since Abe came into office late last year, the economy has grown and the stock market has hit new peaks. This has been driven by stimulus - with the Bank of Japan's quantitative easing and increased government spending as the first and second "arrows" of Abenomics.
Now, however, comes the third and hardest part: structural reform and increasing productivity. Priorities include bringing women into the workforce, educational reform, emphasising innovation and cutting red tape. Financial consolidation and raising tax revenue is also critical, given the high level of public debt.
None of this is easy, and will be resisted by vested interests.
There is also suspicion that Abe's true ambitions are not economic reform but to raise Japan's security capacity. Pursuing such ambitions will dissipate Abenomics and should be resisted. Any Sino-Japanese turbulence can negatively affect Asian co-operation.
Much will depend on American policy. But others in Asia will do well to tell Tokyo clearly that tensions are not appreciated. The present need is for dialogue on financial policies.
Asians should also keep encouraging Abenomics, through economic agreements - the US-led Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, which is centred on Asean and brings in all major Asian countries. Tokyo is a key player, given that the US is not in the latter grouping, and China now stands outside the former.
Concessions garnered in the agreements can help Abe push through the pain of structural changes, with the agreements serving as external anchors to domestic reform.
Reform and these economic agreements can also transform how the Japanese economy relates to the rest of Asia, and especially the Association of Southeast Asian Nations. Take investments. Abenomics is triggering a resurgent interest in Asean. Early signs include Toyota's US$2.7 billion commitment to expand production facilities in Indonesia.
There is also potential for more two-way flow, for other Asians to invest in Japan. Deregulation and a single window of procedures will be needed. But if the yen is lower and stable, and the economy growing, Japan will have its attractions. Reform can also open the society for more Asians with skills to work and study there.
A reforming Japan can set the pace again for its regional competition. A softer yen has already led to Korean companies complaining about their eroding price competitiveness in export markets, and, in some areas, Japan offers a combination of technology, know-how and low-cost capital that China cannot match.
When he came into office, Abe made the point of visiting Asean countries first. A new Japanese-Asean partnership can be forged. Yet even if Abenomics succeeds, there will be no return to the days when Japanese invested in Asean for cheap land and labour and dominated the region, with little competition.
A revitalised Japan will benefit the region but its future relationship with a rising Asean must be more two-way, and woven into wider regional integration.
Simon Tay is chairman of the Singapore Institute of International Affairs and associate professor at the National University of Singapore Faculty of Law