ELECTION MAY FIX JAPAN’S TOYOTA PROBLEM
Covering Japanese politics arguably has long been the most boring, thankless and irrelevant journalism job in Asia. That was until Yuriko Koike entered the fray. 14 months ago, she upended the patriarchy by becoming Tokyo’s first female governor—and Japan’s second most powerful politician. Koike quickly irked Prime Minister Shinzo Abe by taking on the powerful nuclear and tobacco lobbies and demanding a full accounting of why runaway Tokyo 2020 Olympics costs are already double initial estimates.
Now, Abe senses an existential threat as Koike’s new Party of Hope challenges him in the 22 October snap election. Even if Koike herself doesn’t lead the charge, the pressure on Abe could be Japan’s gain. Win or lose, the challenge from Koike’s party increases the odds Tokyo will implement vital reforms much faster and far more forcefully than Abe has since December 2012.
Take Koike’s ideas on Toyota Motor Corp. and other Japan Inc. icons hoarding cash better used to fatten paychecks. The biggest failure of Abenomics is that it’s been 90% monetary easing and, at best, 10% structural upgrades. Corporate profits surged, but wage gains have been negligible. That’s despite some of the tightest labour markets anywhere. Greed explains partly why executives aren’t sharing the wealth. The bigger reason: doubts Japan’s revival is real.
Whereas Abe tries to spin the media—“japan is back!”—koike wants to tax irrationally large cash reserves at big companies that total about $2.7 trillion.with nearly $60 billion of idle cash on hand, investors jokingly call Japan’s most important multinational “Toyota Bank”.
For all his histrionics about making Japan great again, Abe hasn’t taken on Japan’s most important vested interest—the business lobby. Koike, for example, wants to give households a tax cut. That’s quite a contrast to Abe plotting to raise sales taxes and cut corporate levies. By targeting the 1%, Abenomics left Japanese households behind.
“Yurinomics”, by contrast, aims to treat the causes of Japan’s malaise, not just the symptoms. Deflation, remember, is just a feature of an aging population with little confidence in future living standards. By focusing on Bank of Japan easing, a weaker yen and modest corporate governance tweaks, Abenomics has done little to prepare Asia’s richest nation for competitive threats from China, India and upstarts around the region.
Throwing Tokyo’s lot in with Donald Trump is its own historic blunder. What, after all, is Abe getting for his fealty to Trump’s chaotic White House and pledges to create $450 billion of new US markets? His weak approval ratings provide one answer. So does the fact that Japan Inc. isn’t seeing reciprocal investments from America. Trump’s amateurish trolling of North Korea is an existential threat to Japan’s 127 million people. The odds of the smart, worldly Koike being rolled by Trumpistan are, to me, quite low.
Koike’s party plans to create millions of good-paying jobs by phasing out nuclear reactors. In the aftermath of the 2011 Fukushima crisis, most Japanese favour a reactor-free future. Abe’s Liberal Democratic Party is too beholden to the nuclear lobby to respond. Koike sees inventing and selling ways for China, India and the rest of Asia to grow sustainably as Japan’s ticket to global leadership. Renewables innovation would create more wealth than corporate welfare to Toyota and others.
Gender disparities, meanwhile, could use a woman’s touch. For all Abe’s talk of “womenomics” and making the other half of the population “shine,” Tokyo is still sliding in empowerment rankings. Japan is now in 111th place in the World Economic Forum’s gender-equality index, from 98th before Abe took over. Gender isn’t just a talking point for Koike, but an absolute priority. As Goldman Sachs has estimated, gross domestic product, or GDP, would get a 15% boost if the female labour participation rate matched that of men (about 80%).
Abe just got a serious wake-up call. The message to the prime minister: get serious about loosening labour markets, encouraging entrepreneurship, cutting red tape, modernizing the tax system and catalyzing new industries, or move aside.
When Abe announced this election on 25 September, he thought he’d win in a wink. Just like Britain’s Theresa May, though, Abe misread the national mood and the feistiness of the opposition. Nor did Abe foresee Koike pulling an Emmanuel Macron. Just like the French President, Koike suddenly formed a new party and used her charisma to attract key players. In short order, her party upended the political order, sent shock waves through boardrooms from Toyota to Sony, and offered a ray of hope to Asia that Japan might soon be a reliable growth engine again.
Even if Abe holds on, the Koike effect will force Tokyo to get serious about raising competitiveness. Last week, Abe told the Yomiuri newspaper that he will accelerate reform efforts. Clearly, he’s feeling the heat.
Amid the uncertainty wrought by Yurinomics, one thing is for sure: suddenly, Japanese politics is anything but boring.
William Pesek, based in Tokyo, is a former columnist for Barron’s and Bloomberg and author of Japanization: What the World Can Learn from Japan’s Lost Decades.
His Twitter handle is @williampesek.