Japanese PM Abe bows out owing to illness as nation grapples with crisis

Lizzy Burden assesses the goals and potential legacy of Shinzo Abe’s flagship economic policy of 2013

SHINZO ABE, Japan’s longest-serving prime minister, announced his resignation yesterday due to his ill health, kicking off a leadership contest in the world’s third-largest economy as it grapples with the impact of coronavirus.

Mr Abe, 65, bowed in apology as he confirmed at a press conference that he was stepping down after nearly eight years in power following a recurrence of a chronic inflammatory bowel condition.

“I apologise from the bottom of my heart that despite all of the support from the Japanese people, I am leaving the post with one full year left in my term and in the midst of various poli- cies and coronavirus,” he said.

His announcement brought to an end weeks of intense media speculation surrounding the health of Mr Abe, who has suffered from the condition ulcerative colitis since his teens.

It was Mr Abe’s second resignation as prime minister over ill health, having previously ended a one-year stint in power in 2007 due to the same medical condition before returning to power in 2012. Mr Abe had been due to stay in power until September 2021.

The ruling Liberal Democratic Party (LDP) is likely to call a vote shortly to elect its next president and Japan’s prime minister. Potential successors include a string of conservative LDP heavyweights, including Shigeru Ishiba, a former minister, Yoshihide Suga, the chief cabinet secretary, and Taro Kono, the defence secretary.

Mr Abe said: “I cannot be prime minister if I cannot make the best decisions for the people. I have decided to step down from my post.” He added: “It is gut wrenching to have to leave my job before I accomplish my goals.”

Earlier in the week, Mr Abe appeared to hit the heights of his political career, as he became Japan’s longest serving prime minister in terms of consecutive days in office. Marking his 2,799th day in the role, he overtook a previous record set by Eisaku Sato, his great-uncle, nearly 50 years ago.

Potential celebrations, however, were overshadowed by a visit to a Tokyo hospital on the same day – his second visit in a week – fuelling speculation surrounding his health.

Mr Abe’s departure comes at a time when his support ratings are at a record low, with widespread public discontent over his handling of the coronavirus pandemic, its impact on the economy and a string of ongoing political scandals.

When Mr Abe came to power for a second time in 2012 it brought a period of unexpected stability to Japan’s political landscape, following a revolvingdoor scenario of six different prime ministers in as many years.

Since then, conservative Mr Abe has strengthened Japan’s military, sought to counter China’s growing influence and had been instrumental in winning a bid to host the now postponed 2020 Olympics in Tokyo. However, he is perhaps most renowned for his economic policies. His three-pronged strategy of so-called “Abenomics” aimed to defeat deflation and revive economic growth with hyper-easy monetary policy and fiscal spending.

During the press conference announcing his resignation, Mr Abe expressed regret at failing to resolve the long-standing issue of North Korean abductions as well as not yet carrying out his dream of reforming the pacifist constitution. “It is going to take a long time for Japan to see a long-standing administration again,” Tsutomu Soma, a bond trader at Monex Inc, in Tokyo, told Bloomberg. “Having a stable government had helped the country pursue various reforms, but political jitters could risk Japan’s position in the international arena.”

Sir David Warren, the former British ambassador to Japan said: “During the four years in which I was British ambassador to Japan from 2008 to 2012, there were five prime ministers. A revolving door as fast as this reduces a country’s international credibility.

“Abe has steadied the ship, in part helped by the absence of effective parliamentary opposition to the Liberal Democrats.”

‘I cannot be prime minister if I cannot make the best decisions for the people. It is gut wrenching to have to leave before I accomplish my goals’

Almost $50bn (£38bn) was wiped off the Tokyo stock market yesterday after news broke that Shinzo Abe, Japan’s longest-serving prime minister, was resigning.

Confirming reports that he was stepping down for health reasons after almost eight years in office, the 65-year-old said he did not want to make any missteps in important policy decisions amid the coronavirus crisis.

Earlier this week, the market had rallied to levels not seen since the Nineties, but the benchmark Nikkei 225 dropped 1.4pc as investors worried about who will take over and potentially make changes to “Abenomics”, a strategy to revive the economy first launched in 2013.

But what was Abenomics? The idea was to shoot “three arrows” – monetary easing, fiscal spending and structural reform – at the heart of the world’s third-largest economy, which had been plagued by 20 years of deflation and cursed with a rapidly ageing population.

Monetary easing

When Abe returned to power after a disastrous first term between 2006 and 2007, he cut a deal with the Bank of Japan to unleash monetary easing, with the goal of reducing the cost of borrowing, stimulating business activity and personal consumption, and pushing inflation up to a 2pc target.

The policy helped to strengthen the competitiveness of Japanese exporters by weakening the yen. However, the inflation target has remained stubbornly out of reach.

Japan even suffered deflation from 2015 to 2016, which returned this year with the pandemic.

Government spending

The Abe government also pumped hundreds of billions of dollars into modernising Japan’s infrastructure, partly in preparation for the Olympic Games that Tokyo was meant to host this year.

However, the investment could not stop the economy derailing several times: GDP contracted between 2014 and 2015 before recovering, and Japan sank into recession again this year even before Covid hit.

With an ageing population more inclined to save than spend, consumption has remained stubbornly low and spending was hit further by two consumption tax hikes in 2014 and again last year.

Economists had warned both times that the increases would send the economy into reverse but the government pushed ahead, spurred on

Structural reform

Another key target was Japan’s labour market: since the Second World War, workers had come to expect life-long employment and extensive benefits.

But attempts to overturn the model and promote flexibility have moved slowly. Bright spots have included a rising number of women and older people in the workforce, as well as some loosening of the country’s strict immigration policy that may help tackle chronic labour shortages.

“Structural reform, or the third arrow, has been the declaring failure of Abenomics,” says Samuel Tombs at Pantheon Macroeconomics. “Even the government’s signature immigration reform last year was much ado about nothing, in practice.”

Where next?

The pandemic has wiped out any of Abenomics’ gains, so Abe’s successor will be left with a heap of unfinished business. Takeshi Minami at the Norinchukin Research Institute says: “The focus at the moment will be on the coronavirus recovery and controlling the infection, regardless of who will be the next prime minister. There has been talk that Abenomics has been having a harmful impact, so I think the focal point will be on suggestions how to make changes.”