Japan would lose voice of prudence if scandal brings down Aso
TOKYO: If the cronyism scandal that has paralysed parliament in Japan ends up swallowing veteran Finance Minister Taro Aso, a government hooked on radical reflationary polices would lose its strongest defender of fiscal prudence. Investors should watch out. The scandal has still to play out and markets haven’t priced in just how much damage it could inflict on Prime Minister Shinzo Abe’s government.
“Aso has been a restraining voice against growing calls in the administration for big fiscal spending and radical steps,” said Koichi Haji, chief economist at NLI Research Institute.
“If Aso were to resign, the next finance minister would have big shoes to fill.”
Abe and Aso are under fire over the finance ministry’s admission that it had altered records of a discounted sale of state- owned land to a school operator with ties to Abe’s wife.
Opposition lawmakers have called for Aso’s head and are boycotting parliamentary debate over budget proposals for the coming financial year.
With his enemies circling, Aso has refused to step down and Abe has defended an ally he was counting on to help him secure a third term as leader of the ruling Liberal Democratic Party ( LDP) when the party votes in September.
But there are growing calls even from within the LDP for Aso to fall on his sword.
A public opinion poll by Sankei showed 71 per cent of respondents thought he should go.
“This is a serious threat to democracy,” Yoshimitsu Kobayashi, chairman of Japan’s influential business lobby Keizai Doyukai, told a news conference on Tuesday.
“If you’re a head of a private company, you would resign regardless of whether you had knowledge of the misconduct or not.”
It is an awkward time for exportdriven Japan to have a finance minister’s future hanging in the balance, with the world fearful that US President Donald Trump may have fired the first shots in a global trade war by placing hefty tariffs on steel and aluminium imports.
Aso already appears set to skip a Group of 20 finance leaders’ gathering next week.
Though no date has been set for the next meeting of a US- Japan bilateral economic dialogue, Aso is supposed to head the delegation in Washington that will come under pressure to reduce Japan’s trade surplus with the US.
Even if Aso survives this scandal, some analysts fear he would be so politically damaged that he could lose his clout.
Aged 77 – old even by Japan’s standards – Aso’s political shelf life could be running out.
But as a former premier himself and the leader of a powerful faction within the LDP, Aso still has enough political heft to tell a prime minister who is 14 years his junior to think twice before making fiscally risky moves.
“The premier doesn’t take Aso’s views lightly,” said a government official placed well enough to know.
“The fiscal debate could be affected depending on how the scandal unfolds.”
While Abe has made breaking the economy free of a long, debilitating deflationary phase its priority, Japan can ill afford any laxity when it comes to keeping a lid on debt levels that are the highest of any major economy.
When he came to power in 2012, Abe embarked on a mix of ultra loose monetary policy, fiscal stimulus and reforms.
But the central bank’s two per cent inflation target remains elusive even as the economy enjoys its longest run of growth – albeit at low levels – in 28 years.
Driven by the need to see ‘Abenomics’ succeed, the prime minister hasn’t always listened to the cautionary words from the oldest member of his cabinet.
Abe’s decision to delay a sales tax hike in April 2017 went against Aso’s advice.
Late this year, Abe must decide whether to proceed with the twicedelayed increase in the sales tax in October 2019. — Reuters