Japan after Abe departs

The following editorial appears on Bloomberg Opinion.

When Japanese Prime Minister Shinzo Abe announced his pending resignation last week for health reasons, he had been in office for nearly eight years, the longest such stint in Japanese history. But even that wasn’t long enough to fulfill the potential of his premiership. His successors would be wise to appreciate why.

Abe will rightfully be remembered for the many changes he did manage to push through. His three-pronged “Abenomics” program of loose monetary policy, fiscal stimulus and structural reforms scored some initial successes — boosting growth, stocks and employment. His government brought an unprecedented number of women into the workplace and immigrants into the country. Corporate governance reforms have begun to change the complexion of boards and behavior in Japan Inc. And, perhaps most dramatically, Abe bolstered Japan’s geopolitical standing, by strengthening its military capabilities and by pushing through free-trade deals with the European Union and the nations that remained in the Trans-Pacific Partnership after the U.S. withdrew.

Yet whoever follows Abe will confront challenges almost as great as he did.

Growth, wages and inflation never really picked up sustainably; now, after pandemic-related lockdowns, the economy has shrunk to the size it was before Abe took charge. A huge $2.2 trillion stimulus and continued monetary largesse from the Bank of Japan should help cushion the blow. Nevertheless, the list of unfinished tasks is long. Regulations that stifle entrepreneurship and innovation still need to be slashed. A seniority-based employment system that impedes mobility and wage growth needs to be shaken up. Too many Japanese remain trapped in irregular work with few benefits and career prospects.

Even in areas where Abe made a good start, much work remains. The precariousness of most women’s jobs has been revealed by the pandemic; more needs to be done to address gender pay gaps and provide women with sufficient flexibility and child-care support to develop stable careers. Many of the business reforms promoted by Abe’s government ended up being more limited than originally envisioned; it will take an equally forceful leader to persuade boards and CEOs to continue improving Japanese corporate culture.

Broader changes will be required if Japan is to attract the number and quality of immigrants the country really needs.