How Abe Is Making a Failure of Success
Reforms ▶ Japan’s powerful prime minister still can’t get the economy going ▶ “Reform requires whacking away at vested interests” Scary Numbers
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 seriousus threat.
Surprisingly,y, the electoral cloutt hasn’t given him free rein to push his signatureature economic programam forward. Launched hed with great fanfare e 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 (thehe world’sw highest). They persuaded Abe to go with a hike in the consumptiontion tax from 5 percent to 8 percent in April 2014.20 The move triggered a recessionsion andan offset the progress that the Bank oof Japan’s monetary easing had made in stoking the stock market and wweakening the yen.
With the yen rising and growth slowinslowing, Abe’s closest advisers know theyth need to do more. Kozo Yamamoyamamoto, a member of the “reflareflationist camp,” on April 13 callecalled for new fiscal stimulus, fresh BOJ easing, and even a ttax on companies with big cash hoards to prod them to invest. Even so, Abe is under pressurepre to hike the sales tax to 10 pepercent.
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
GDP, year-over-year changege The bottom line Prime Minister Abe is the most powerful politician in Japan, but his reform policies face opposition even from his own party.
controversial, wheat lobbyists are calling for more federal research funding, as farmers and universities recognize that yields must increase. Nigeria and Indonesia, with their fast-growing markets, are becoming big buyers of American wheat, and the reliability of U.S. agriculture is a selling point. A Russian drought in 2010 triggered an export ban, leading to bread riots in Egypt and the Arab Spring in 2011.
Wheat will always be grown in regions that are too dry or cold for soybeans and corn, and the U.S. will remain a major exporter. But that doesn’t mean the industry can continue on the same path, Penner says. “There’s a point at which we won’t be able to recover. I don’t think we’re at that point, but the competition is only going to get better.” �Alan Bjerga
The bottom line The strong dollar, climate change, rising competition, and stagnant yields have toppled the U.S. from the top spot in wheat.
Art Peck, chief executive officer of Gap, made a bold promise last June at an investor meeting in San Francisco. Spring 2016, he said, would mark a fresh start for the company and its flagship brand, a turning point from sales declines and a two-year slump. He assured the audience that he and his top executives were focused on delivering results and new products. “Spring is a no-excuses moment,” Peck said, “particularly in the women’s business.”
Ten months later, the transformation has yet to materialize. Sales have continued to disappoint. Optimism from better-than-expected results in February disappeared by the time March figures were reported. Comparable sales at Gap stores open at least a year and online have declined for the past eight quarters. With more inventory on hand than expected in April, the company will need to aggressively discount prices to sell the goods. Analysts and investors question whether Peck and his team have a plan and wonder just how much trouble the company is in. “Spring was supposed to be a blockbuster quarter for them,” says Simeon Siegel, an analyst with Nomura Securities, “and it didn’t materialize.”
New products are finally on the horizon. Jeff Kirwan, global president of the Gap brand, and Wendi Goldman, executive vice president for product design and development, say “premium” and “quality essentials”— namely T-shirts, jeans, and khakis— will bring back customers. Although new inventory is always being stocked, some of these basics will arrive in May, they say. Store windows highlighting the line will feature white and color tees in different fabrics and cuts.
“Optimistic, cool, elevated American style” is what Gap aspires to, says Goldman, one of the executives charged with reviving the once-iconic brand. But many shoppers say Gap lost its cool reputation years ago and now occupies a middle ground, with a boring variety of products of lesser quality than in competitors’ stores. “It’s just a lot of T-shirts and striped socks,” says Cathy Anderson, who lives in Washington, D.C., and writes a fashion blog called Poor Little It Girl. “It’s really messy—i’m not a rummager.”
Wooing customers will be tough, retail analysts say, because many other big apparel retailers today also carry basics, often at lower prices. Gap’s signature products were “so simple that everyone started doing it,” says Michael Appel, president and founder of Appel Associates, a retail consulting firm. “It’s very hard to keep the business going on those basic, core categories when everyone else is knocking you off.”
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