Shinzo Abe may end up as Ja­pan’s long­est-serv­ing leader, but Abe­nomics is un­der con­stant as­sault

Ja­pan’s pow­er­ful prime min­is­ter still can’t get the econ­omy go­ing “Re­form re­quires whack­ing away at vested in­ter­ests”

Bloomberg Businessweek (Asia) - - CONTENTS -

Prime Min­is­ter Shinzo Abe has had a great run since as­sum­ing power in 2012. His Lib­eral Demo­cratic Party-led coali­tion govern­ment was re­elected in 2014 with a com­fort­able ma­jor­ity in the Diet. Polls sug­gest it would prob­a­bly win again if Abe calls lower house elec­tions in the near fu­ture, as some ex­pect. He could be in power through 2020, be­com­ing Ja­pan’s long­est-serv­ing prime min­is­ter. No politi­cian in Ja­pan poses a se­ri­ous threat.

Sur­pris­ingly, the elec­toral clout hasn’t given him free rein to push his sig­na­ture eco­nomic pro­gram for­ward. Launched with great fan­fare three years ago, Abe­nomics aimed to re­vive Ja­pan with a three-pronged strat­egy of ag­gres­sive mon­e­tary eas­ing, fis­cal spend­ing, and struc­tural re­forms. In­stead, the In­ter­na­tional Mon­e­tary Fund in April halved its 2016 growth fore­cast for Ja­pan to 0.5 per­cent, de­fla­tion re­mains a worry, real wages have fallen for four con­sec­u­tive years, and the Nikkei is down 11 per­cent this year as for­eign in­vestors head for the ex­its.

Abe’s power is con­stantly be­ing chal­lenged. He faces push­back on his eco­nomic re­vi­tal­iza­tion drive not just from the op­po­si­tion Demo­cratic Party, but also from some fel­low LDP law­mak­ers and his own ru­ral voter base. “Re­form re­quires whack­ing away at vested in­ter­ests, but when you’ve been in charge, like the LDP, for the bet­ter part of 60 years of a highly ho­mo­ge­neous so­ci­ety, most of those vested in­ter­ests will also be your bedrock con­stituen­cies,” says Jun Oku­mura, a vis­it­ing scholar at Meiji In­sti­tute for Global Af­fairs.

Abe wants to cut cor­po­rate taxes; lib­er­al­ize the agri­cul­ture, en­ergy, and health-care in­dus­tries; and make the la­bor mar­kets more flex­i­ble and open to women and for­eign work­ers. It’s been slow go­ing. LDP fis­cal con­ser­va­tives have fo­cused in­stead on Ja­pan’s debt (the world’s high­est). They per­suaded Abe to go with a hike in the con­sump­tion tax from 5 per­cent to 8 per­cent in April 2014. The move trig­gered a re­ces­sion and off­set the progress that the Bank of Ja­pan’s mon­e­tary eas­ing had made in stok­ing the stock mar­ket and weak­en­ing the yen.

With the yen ris­ing and growth slow­ing, Abe’s clos­est ad­vis­ers know they need to do more. Kozo Ya­mamoto, a mem­ber of the “re­fla­tion­ist camp,” on April 13 called for new fis­cal stim­u­lus, fresh BOJ eas­ing, and even a tax on com­pa­nies with big cash hoards to prod them to in­vest. Even so, Abe is un­der pres­sure to hike the sales tax to 10 per­cent.

At the same time, the prime min­is­ter needs to speed up struc­tural re­forms, say the IMF and the U.S.Ja­pan Busi­ness Coun­cil. One as­pect of those re­forms is guid­ing the Trans-Pa­cific Part­ner­ship trade pact through the Diet. Ja­pan im­ports about 60 per­cent of its food and has agreed to re­duce du­ties on many farm prod­ucts. Abe ar­gued in a Jan­uary Diet speech that the trade deal would gen­er­ate jobs, boost growth, and usher in a “new era in agri­cul­tural pol­icy.” Ja­pan’s largest farm lobby, JA-Zenchu, is de­mand­ing that the govern­ment com­pen­sate pro­duc­ers hurt by the deal and warned in Oc­to­ber of “grow­ing voices of un­ease and anger in farm­ing re­gions.” If the LDP’s ru­ral sup­port weak­ened, it would af­fect its abil­ity to win elec­tions.

Or­di­nary Ja­panese re­act neg­a­tively to the idea of struc­tural change, says Mireya Solís, a se­nior fel­low for East Asian stud­ies at the Brook­ings In­sti­tu­tion. “They have no stom­ach for it,” she says. With la­bor re­form, they think there’ll be more fir­ing than hir­ing, Solís adds.

De­spite the speed bumps, “there has been no change in the trend to­wards re­cov­ery,” Abe said in a news con­fer­ence in March. No mat­ter how long Abe is in of­fice, reen­er­giz­ing the econ­omy will re­main a chal­lenge be­cause his core sup­port­ers are re­sis­tant to change. Enda Cur­ran and Isabel Reynolds, with Anna Kitanaka

The bot­tom line Prime Min­is­ter Abe is the most pow­er­ful politi­cian in Ja­pan, but his re­form poli­cies face op­po­si­tion even from his own party.

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