Shinzo Abe down to his last arrow in plan to revive Japan's economy

Many Japanese are relieved to see a leader with staying power, even if they don't like his hawkishness; now his economic plan must work.

PUBLISHED : Thursday, 14 August, 2014, 10:19pm
UPDATED : Friday, 15 August, 2014, 9:32am

After Shinzo Abe was elected prime minister in 2012, Tomonobu Kumahira, a college student from Japan, thought he wouldn't last long. After all, prime ministers have short shelf lives in a nation with elections almost every year.

But more than a year and a half in, Abe has outperformed Kumahira's expectations, and those of many Japanese voters, making him the longest-serving prime minister in eight years.

Kumahira, 23, hasn't liked several of Abe's decisions - and worries that his hawkishness may provoke China.

Still, like many Japanese voters, Kumahira hopes Japan can stop the revolving door of leaders that has paralysed the country's politics and prevented the world's third-biggest economy from playing a bigger role on the global stage.

"I don't particularly like any of his policies. But the fact that he is in the office long enough to get something done is literally a relief for me," said Kumahira, a student in international relations at Brown University in the US state of Rhode Island.

"Even though his policies are controversial, this kind of political stability is something Japan really needs right now."

Twenty months since assuming office for the second time, Abe and his Liberal Democratic Party had made great strides to move Japan forward, analysts said. For the first time in many years, a Japanese leader saw high approval ratings during much of his first year.

But some of Abe's recent moves - in particular his vow to let Japan's military help allies overseas - have given Kumahira and some in Japan a dilemma. They may not fully support such policies, but they do yearn for a strong leader who can restore the country's sheen after decades of economic stagnation amid China's economic and military rise.

Abe now faces daunting challenges. He must shore up confidence in his policies, in particular a vow to restructure the country's economy, an effort that many analysts say is vital to restoring Japan's fiscal vigour.

Analysts say that an absence of credible opposition, both within and outside of the LDP, is likely to protect Abe from major political setbacks and see him survive until 2016, when the next election is scheduled. If that happened, Abe would be the third Japanese prime minister since 1972 to hold the job for more than four years.

Since 2006, prime ministers have resigned almost annually when their policies failed to win the public's support. That has triggered party elections, leading to new prime ministers and sometimes new cabinets.

For most of last year, Abe enjoyed about 60 per cent approval ratings in polls conducted by various major media organisations. Few of his predecessors could have achieved this.

"I can't tell you how many people I talked to in important positions in Japan are rooting for him, so much because of the energy he brings, the approach, the attitude that they really have been desperate for for a long period of time," said James Schoff, a former senior adviser on East Asia policy to the US Defence Department.

Many analysts attribute such a high level of support to Abe staying focused on the economy, something that he failed to do during his first term between 2006 and 2007.

The core of what's been dubbed "Abenomics" is a three-pronged approach that involves fiscal stimulus, monetary easing and structural reforms. Abe called these steps the "three arrows", borrowing from a Japanese folk tale.

The first two stages were achieved effectively within a year. He introduced stimulus of 10.3 trillion yen (HK$783 billion) a month after he took power in December 2012. Last year, the Bank of Japan unleashed a massive round of quantitative easing by pledging to inject US$1.4 trillion into the economy in less than two years.

At that time, the bank set an inflation target of 2 per cent within two years. Japan's inflation rate then hit 1.6 per cent, a six-year high. The Japanese yen also fell 25 per cent last year, and the Nikkei index shot up by 56.7 per cent in the same period.

Schoff said these initial successes not only boosted Abe's popularity ratings, but also gave him credibility within the party to push through other policies, silencing potential critics.

"Normally they would be much more vocal in expressing their opposition," Schoff said. "Right now, if they get too vocal they just get pushed aside."

Abe has demonstrated that his ambitions go beyond the country's boundaries. He has racked up air miles and become the most travelled Japanese prime minister, collecting 47 stamps so far in his passport.

During one of his first trips, to Washington, Abe laid out his vision for a more proactive Japan in a speech at the Centre for Strategic and International Studies. He declared: "Japan is back."

This was quite a change, since Japanese prime ministers had not been known for being particularly outgoing, said Michael Auslin, director of Japanese studies at the American Enterprise Institute in Washington.

The goal, Auslin said, was to create more business and political opportunities. This was not just about restoring Japan's position, but also "making sure that it plays a role in responding to China's rise and China's assertive behaviour".

Abe has reached out to Southeast Asia, where numerous countries have been arguing with China over control of the South China Sea. He has also sought to revive relationships with India and Australia, potential security partners in deterring China as it flexes its military muscles.

When he ran, Abe was the first politician to emphasise in his platform that Japan needed to guard against China, and that message continued to drive his agenda, said Sheila Smith, a senior fellow for Japan studies at the Council on Foreign Relations in Washington.

"You have a public today that is very sensitive to Chinese behaviour, and so Mr Abe can point to that and say we are going to defend our country no matter what," Smith said.

The two Asian neighbours have a long history of animosity, and Japan's insecurity grew in 2010 when China displaced Japan as the world's second largest economy. Just a month later, a Chinese fishing trawler collided with two Japanese coastguard ships. China responded to the arrest of the captain by imposing an informal embargo of rare-earth materials and arresting Japanese businessmen in China.

Abe has tapped into a sense of vulnerability.

Last December, he achieved what he failed to do in 2006, creating a National Security Council. The new entity promises to centralise security-policy planning to ensure better coordination between the foreign and defence ministries amid increased regional tensions. The same month, Abe's administration also passed a controversial secrecy law, which gives government agencies new powers to classify information. It also toughens penalties for leaking information.

Despite Abe's assurance that the law would strengthen national security, it has drawn public scorn. Critics say its vague definition would make the government more opaque and the stiff penalty, which mandates up to 10 years in prison, could hamper the public's right to know. But despite unusually large public protests, the Diet passed the law in four weeks.

Seven months later, Abe announced that the Japanese military, for the first time in more than 60 years, would be allowed to assist allies on foreign soil by exercising a right to "collective self defence". His broad interpretation of Japan's constitution would end post-war constraints on military aggression. Parliament is expected to debate the issue later this year.

Analysts say Abe wants Japan's military to regain its authority, allowing the country to play a bigger role in international affairs. This is seen as a reaction to Beijing's growing power.

But these hawkish policies have punctured Abe's once lofty approval ratings. His numbers have slid since the secrecy law's passage. They dropped to below 50 per cent after his cabinet adopted his plan to reinterpret the constitution.

The Japanese public, it appears, is not ready to change what they see as a symbol of their post-war identity.

"It's a strong symbol of Japanese peaceful intent," Smith said.

Abe raised Japan's sales tax earlier this year, and he's expected to decide in December whether to boost it again - from the current 8 per cent to 10 per cent. Doing so would likely mean that widespread public support would not return, the analysts said.

To make things worse, the hope of Abenomics appears to be withering. Japan's economy began to contract once Abe raised the consumption tax in April. The cabinet announced on Wednesday that the economy shrank by an annualised 6.8 per cent in the second quarter. It was the worst contraction since the earthquake and tsunami in 2011.

Many believe that to regain public approval, Abe needs to prove that his third "Abenomic arrow", structural reform, will be effective.

Economists and businesses saw the first iteration last year as too timid. Abe came back with another draft in June.

"It's clear that his biggest challenge is to get a significant structural reform," Auslin said. "That's not something he has come up with a clear plan for, so far."

Despite the dents in his popularity, it looks likely that Abe will remain in office for a full term. That's largely because he faces almost no competition, even though Abe has little of the charisma of former prime minister Junichiro Koizumi, who left office in 2006 after a five-year term.

No one within the LDP is likely to challenge Abe. "There is no one that has similar stature in the party. He has carved out a very clear position, unlike others in the party," Auslin said.


There was now a deeper sense of discipline in the LDP "because they really cannot afford to mess up", said Smith from the Council of Foreign Relations.

For Kumahira, the college student, Abe's party might be his only choice when he next votes.

"I supported Koizumi when I was very small. I really liked his policies because they were very visionary," Kumahira says.

"Abe's policies are mainstream. It's more like nobody disagrees, rather than everybody likes him."