Autor: Dominik Hodboď

Introduction

After a sweeping victory in 2012 Japanese general election and subsequent upper house election in 2013, Shinzo Abe, the current prime minister, found himself and his Liberal Democratic Party (LDP) in a position of a comfortable parliamentary majority. Mr Abe had resigned from the office of prime minister in 2007 as a very unpopular man (his approval ratings were at around 30%). In 2013, only few months into his new term in office, his approval ratings were at around 70%.[1] It seems that the voters were allured by his nationalism and desire to make Japan an important geopolitical power again. However, it is not nationalism that rose to be the main issue in Japanese politics after 2012. The reason for Mr Abe’s popularity at the beginning of his term was an improved economic situation. Rise in the stockmarket and a larger growth of the economy were the main causes for the optimism.[2] The prime minister launched an ambitious programme to revive the troubled economy, known as “Abenomics”. Less than two years of Abenomics, however, it appeared that the programme was not mending the economy after all. That was a reason for the prime minister to call for a snap general election taking place last month, seeking a clear mandate from the electorate to carry on with his economic reforms. This short essay aims to show the causes for this election, describe its outcome and analyze its potential consequences for both domestic and foreign affairs.

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Abenomics

Economics was the main reason for the latest general election in Japan. There can be no doubt then that in order to understand the causes for the election, it is necessary to know the government’s economic programme, known as Abenomics. Before any explanation, it is crucial to understand Japan’s major economic problems which Abenomics aims to tackle. Back in 1996 it seemed that Japan was on its way to recovery after bursting of a major asset-price bubble. However, the then government considered it plausible to raise consumption tax, from 3% to 5%, which happened in 1997. That is seen as one of the key reasons (along with Asian financial crisis and weak banking sector) for the ensuing drop in consumption, low inflation or even deflation and a year and a half long recession[3]

When Mr Abe assumed office for the second time in 2012, he faced an economy that still had not been recovered. He vowed to tackle its main troubles, among others, low inflation, huge public debt and slow growth. His Abenomics consists of three arrows: monetary policy, fiscal stimulus and structural reforms. The first arrow is perceived as quite well “hit”, the quantitative easing (central bank buying government bonds, thus reducing the interest rates) and weakening of yen helped to boost inflation,. There have been three packages of fiscal stimulus to the economy so far of total worth of 19.3 trillion yen (the third one worth 3.5 trillion yen was announced recently and due to be unleashed this year). Their contribution to the economy is questionable.[4] The third arrow is most criticized. It should include deregulation, corporate tax reform, agriculture reforms, boosting female labor participation, employment of young and elderly and other reforms. It should also involve bigger Japan’s involvement in regional trade, mainly its participation in the Trans-Pacific Partnership (TPP) deal. So far, these reforms have not taken place, at least not significantly. The TPP negotiations are currently stuck.[5]

The public debt of Japanese government is currently around 240% of GDP. With such huge number, it is hard to push through stimulus packages without raising governmental income. That is why the government decided to raise the 5% sales tax to current 8% in April last year. Similarly, as in 1997, this was followed by poor economic data, prompting Mr Abe to postpone planned second increase in sales tax to 10% in October 2015 to April 2017. In November economic data for the third quarter of 2014 showed that the Japanese economy sank into recession. This raised questions about the efficiency of Abenomics. Mr Abe’s response was perhaps a bit bold. He decided to test the people’s approval of his programme by calling for a snap general election taking place on December 14th 2014. He understood that by winning this election, the Japanese agree with his economic steps and he should pursue his reforms further. These were the causes for the general election (election to the lower house of Diet-Japan’s national parliament) happening two years earlier than planned.[6]

The election outcome

The main opposition party, which ruled Japan before Mr Abe’s LDP, the socialist Democratic Party of Japan (DPJ), strengthened in this election compared to 2012 while LDP weakened. That being said, the increase of DPJ’s seats is only marginal as well as is the loss of LDP’s seats. Furthermore, Komeito, LDP’s coalition partner, gained more seats and made up for the LDP’s loss. That means that the ruling coalition remains in power, with even stronger majority in the parliament (over two thirds). For Mr Abe that is a clear sign that the electorate agrees with his reforms (although the turnout was very low, less than 53%).[7] With this mandate he seeks to proceed further with Abenomics. Japanese may expect more monetary easing, another tax hike (delayed), financial stimulus (the third package already announced) and hopefully progress in structural reforms.

After this election, the Liberal Democratic Party has 291 seats in the lower house, its coalition partner, Komeito, has 35 seats. Democratic Party of Japan received 73 seats. The third largest Japanese party, Japan Innovation Party, ended up with 41 seats. What came as a surprise was that the Japanese communists more than doubled their presence in the parliament, they moved from 8 seats to 21 seats. The remaining 14 seats are occupied by smaller Japanese parties.[8]

Consequences

As this election was generally perceived as a “referendum” on Abenomics, the central consequence is that Mr Abe is going to carry on with his reforms and attempt to further it even more. The Japanese are unlikely to be able to save their money with a high yield any time soon. But at the same time, they will be able to borrow money for very low borrowing costs (interest rate), which should result in more spending, new businesses being opened and consequently faster growth. Stimulus packages should contribute to that as well. However, if the Japanese will on the contrary be discouraged from spending by the raised sales tax, the economy is likely to fall deeper into recession. Whether the effects of the tax hike will be similar or not as in 1997, remains to be seen. Mr Abe believes that 2014 is different than 1997.[9]

Probably the most important part of Abenomics is the third arrow, structural reforms. If done well, Mr Abe’s programme will likely be seen as success and Mr Abe himself as one of the best Japanese leaders (he is already one of the strongest leaders in recent history).[10] One of the key parts of these reforms is the Japanese potential participation in a large regional trade agreement. Mr Abe is confident that 2015 will be the year of a breakthrough in negotiations over the Trans-Pacific Partnership.[11] With a Republican led Congress in the US, this could be true (in case the Republicans choose to follow their ideology leaned to free trade rather than hamper the President’s job at any cost).

The potential progress in TPP negotiations is not the only possible outcome important for foreign affairs. For the world, it is interesting to watch the one distinctive aspect of Shinzo Abe’s person that was omitted so far in this essay. It is his nationalism. With a stronger position in the parliament, this salient feature of his may reflect in new attempts to rewrite the pacifistic constitution, written under the supervision of USA during the occupation of Japan after WWII. He desires for Japan to have a stronger military and to be able to come to aid to its allies if attacked (that is prohibited under the current constitution). Such move would be welcomed by the USA, Japan’s most important ally. However, it fuels the worries about potential escalation of the conflict over Senkaku/Diaoyu islands with China. The Japanese people seem to be against the amendment of Japan’s key legislative document. For pushing through this reinterpretation of the constitution, Mr Abe needs to secure a two-third majority in both houses of parliament (that is quite conceivable) but also a win in a national referendum, which is likely to be narrow either way.[12]

Conclusion

Shinzo Abe risked his position as the prime minister of Japan by calling for a seemingly unnecessary election. However, his party could rejoice of a landslide victory after the results came in. Mr Abe locked his strong position for another four years and is ready to proceed with his ambitious economic programme. Mr Abe seems determined to become the prime minister who leads Japan out of poor economic performances. For that he needs to make his three arrows of Abenomics truly work. Most importantly structural reforms seem to be overdue. If Japan overcomes the economic slump likely caused by the latest sales tax rise, it is conceivable that he will succeed. Undoubtedly a huge success would be finishing negotiations over Trans-Pacific Partnership. Mr Abe is optimistic about this. His new mandate also raises eyebrows of the Chinese as he seeks to reinterpret the pacifistic constitution. Should he persuade the Japanese to allow this in a national referendum, Japan would become a more competent ally for the USA and other regional allies. Potentially, it could become a mightier military power. In such case the future of the dispute mainly with China over islands in the East China Sea could get more worrisome. After this election Shinzo Abe feels that he has the approval of the Japanese to direct the country toward bigger regional trade involvement, fulfill his nationalist ambitions and, of course, advance his Abenomics.

Footnotes

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[1] Unknown author, „Japan’s master plan“ The Economist, May 18, 2013.

[2] Ibid.

[3] Ibid.,

„Initial impact of Japan sales tax rise muted“, http://www.ft.com/cms/s/0/d290c4b6-c6bb-11e3-889e-00144feabdc0.html (accessed January 9, 2015).

[4] Unknown author, „Japan’s economy“ The Economist January 3rd, 2015.

[5] „Global economic outlook, Q3 2014“, http://dupress.com/articles/global-economic-outlook-q3-2014-japan/ (accessed January 9, 2015).

„Abenomics and the Japanese Economy“, http://www.cfr.org/japan/abenomics-japanese-economy/p30383 (accessed January 9, 2015).

[6] „Japan PM seeks verdict on „Abenomics“ in snap election“, http://www.reuters.com/article/2014/11/21/us-japan-election-idUSKCN0J506M20141121 (accessed January 9, 2015).

[7] Unknown author, „Japan’s election,“ The Economist, December 20, 2014.

[8] Ibid.

[9] „Abe Bets It’s Different This Time With Sales Tax Rise“ http://www.bloomberg.com/news/2013-09-29/abe-bets-it-s-different-this-time-with-first-tax-rise-since-97.html (accessed January 9, 2015).

[10] Unknown author, „Japan’s election,“ The Economist, December 20, 2014.

[11] Ibid.

[12] “Shinzo Abe’s Constitutional Ambititons”, http://thediplomat.com/2014/06/shinzo-abes-constitutional-ambitions/ (accessed January 9, 2015).

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