Japan Under Abe: New Challenges

Introduction

Japan went to the polls on December 16, 2012 to elect members to the Lower House of the Diet, the more powerful of the two legislative bodies, and elected Abe Shinzo of the Liberal Democratic Party (LDP) with a two-thirds majority, thereby ending the three-year honeymoon in power by the Democratic Party of Japan (DPJ), which saw three Prime Ministers, all ineffective in their own ways. Abe is the seventh Prime Minister in six years, a record that no democratic country can feel proud to keep.

It may be recalled that the LDP has ruled Japan for most of the post-war years and when Japan went to the hustings in 2009, the voters were frustrated by the political paralysis and anaemic economic growth. They ousted the LDP in favour of the relatively inexperienced DPJ, which to that point had functioned as a rambunctious but fragmented Opposition party.

From the beginning, the DPJ suffered from internal divisions on policy matters. The party manifesto contained populist agendas which were difficult to implement. It soon transpired that the transition to DPJ rule was clumsy, and the party demonstrated its bankruptcy in governance with the lack of any practical, well-defined strategy. Its problems were compounded further when the country faced the triple tragedies of March 11, 2011. The DPJ’s third Prime Minister, Noda Yoshihiko, passed a controversial tax increase to address Japan’s fiscal ills and then somewhat surprisingly followed through on a promise to let the voters have their say by calling a snap election despite weak public approval ratings.

The election on December 16 took place during a chaotic period in Japanese politics marked by the emergence of splinter parties and a new amalgam of mostly local leaders who sought to offer an alternative to the DPJ and LDP. A mature electorate decided to repose trust on the LDP which has vast experience in governance.

Earlier a Kyodo News and NHK’s exit polls had showed that the LDP and its ally Komeito may gain two-thirds of the Lower House seats—enough seats to overturn decisions by the Upper House. As it transpired, the LDP and New Komeito combine romped home with 294 and 31 seats respectively. Before the election, the LDP had 118 seats. Prime Minister Noda’s obsession with raising the consumption tax rate, which was not included in the DPJ’s 2009 election manifesto, showed that he was completely under the control of Finance Ministry bureaucrats. During the DPJ administration, workers’ wages did not go up and irregular workers came to account for more than one-third of the nation’s workforce. The DPJ’s numbers in the Lower House decreased to a record low—only 57. In addition, the diplomatic row between Japan and China over ownership of the Senkaku Islands must have made some people feel that Japan is weak-kneed.

Having obtained a two-thirds majority, the LDP-Komeito combine can now override any opposition to legislation in the Upper House, where it does not enjoy majority status. (The next election to that chamber is scheduled for July 2013.) The newly formed conservative party, known as the Japan Restoration Party established by Hashimoto Toru, the populist Mayor of Osaka who joined forces with former Tokyo Governor Ishihara Shintaro to generate a “third force†in national politics, could muster just 54 seats.

Among the core elements of the LDP’s policy agenda are advocating a two-pronged approach of monetary easing to curb deflation and fiscal stimulus to jump-start growth. Such a stance is an apparent repudiation of Noda’s commit-ment to fiscal consolidation. The LDP will take a cautious approach to nuclear energy with an emphasis on ensuring the safety of nuclear power plants, but it will stop well short of the DPJ stance to entirely eliminate the nuclear from the energy mix by the 2030s. The LDP is against Japan’s participation in the Trans-
Pacific Partnership (TPP) trade negotiations if exemptions are prohibited, a predictable position for a political party with a rural support base but one that could become more nuanced. The US has never signed a free-trade agreement without exemptions. Many in the LDP leadership view this as a way to join the TPP. This is because the business community, who are supporters of the LDP, are in its favour as they see joining the TPP as an important part of Japan’s strategy for the US-Japan alliance and China.

With respect to security policy, Abe plans to increase defence spending in the face of the North Korean nuclear and missile threat and China’s assertiveness in the maritime domain. He also argues that Japan should exercise the right of collective self-defence to advance security cooperation with the US and Japan’s leadership role in international security.

Implications for the US

WHAT are the implications of Abe’s accession to power for the US? The US alliance relationship has remained the lynchpin of the US’ strategy in the Asia-Pacific region and this is going to remain so as the Obama Administration articulates its regional priorities. The return of the LDP at the very least offers experienced leadership and improved prospects for gover-nance that augur well for bilateral coordination across a range of issues. Enhanced defence spending in Japan and the country exercising the right of collective self-defence would facilitate improved interoperability between the US military and Japan’s Self-Defence Forces, which in concert with other allies and partners would serve to help shape the regional security environment.

Japan’s relations with China and South Korea will figure prominently amid tension over contested territories. Abe’s recent statements on sensitive historical issues have also garnered attention, though his major advisers expect him to pivot to the Centre in office as he did in 2006, when he oversaw significant improvements in Japan’s relations with Seoul and Beijing. Abe has stated his desire to visit Washington, an ideal opportunity for him to expand on his diplomatic agenda and vision for the US-Japan alliance.

Washington has long urged Tokyo to take on more of the alliance burden, and in parts of Asia, although any effort to recast Japan’s wartime history in less apologetic terms would be less so. Even the Philippines has said that a stronger Japan would act as a counterbalance to China’s military rise, which is worrying smaller Asian nations as tensions grow over rival territorial claims in the South China Sea. In fact, not only the Philippines but the entire South-East Asia would welcome greater defence spending by Japan. Abe has pledged to increase defence spending after a decade of decline, and it is hoped that during his tenure the de facto cap of one per cent of GDP in place for decades would be removed.

The Constitution, drafted by US Occupation authorities during a frantic week in February 1947, has never been altered. Revisions require approval by two-thirds of the members of both Houses of Parliament and a majority of voters in a national referendum. Changing the inter-pretation, however, can be done without legis-lation, so Abe would likely try that first.

Is it the Dawn of Political Stability in Japan?

WITH a two-thirds majority already in its pocket, the LDP-Komeito combine is expected to provide political stability to the nation that will make policy prescription on important issues smooth. If Abe is able to sustain the momentum through the Upper House election next July, the odds for a more stable political environment would become more favourable. But given the political reality and its volatility, no country can be guaranteed of escaping another chapter in a messy process of political realignment in Japan when that occurs. For the present, the political centre of gravity has shifted from Left to Right, but this is less a pendulum swing than a slow movement towards a resting place near the Centre where a stable majority might ultimately reside.

Loosening Limits on Military

WITH the win, Abe has a second chance to achieve his goal of easing the limits of a pacifist Constitution on the military to let Tokyo play a bigger global security role. As the Prime Minister in 2006-2007, Abe made revising the 1947 Constitution a key part of a drive to shed a US-imposed “post-war regime†that conservatives say weakened traditional values and fostered too apologetic a view of Japan’s wartime history. He still hopes to achieve what he has called his “life-work†.

Growing worries about China’s assertiveness on territorial disputes and flexing of its military muscle means that conditions are better now than before for changing how the US-drafted charter is interpreted—if not formally rewriting the document yet—to let Tokyo drop a self-imposed ban on exercising its right to collective self-defence, or aiding an ally under attack. That would allow Japan’s military to shoot down a North Korean missile headed for US cities, come to the aid of a US vessel under attack on the high seas and generally ease the path for joint operations with US forces. Given the anti-military sentiment in some quarters of Japan, changing the interpretation of the Constitution would be relatively easy procedurally and substantially. Abe is capable of doing it and the stars are aligned for that kind of shift sooner rather than later.

It may be mentioned that the Constitution’s Article 9 renounces the right to wage war to resolve international disputes and, if taken literally, bans the maintenance of a military. But it has already been stretched to allow the maintenance of a military for self-defence as well as overseas activities, including troop deployment on a non-combat mission to Iraq. Further moves, even if in some ways symbolic, would trigger outrage in China, where memories of Japan’s wartime aggression run deep. A feud over rival claims to tiny islands in the East China Sea in 2012 sparked violent protests and boycotts of Japanese firms, damaging trade between the region’s two biggest economies.

From all available indicators, it transpires that Right-wing tendencies in Japan are currently very strong, and Abe is acting on this. This does not mean to suggest that Japan will revive militarism, but if it alters the Constitution, it will give Tokyo a chance to strengthen its military weaponry. China is wary of this possibility. However, Abe might not be hasty in taking such a precipitating decision until the elections for the Upper House in July 2013 as it would remain sensitive to the stance of its long-time partner, the more moderate New Komeito party. Abe is likely to move carefully because he realises that if he moves fast, it could have repercussions.

Indeed, Japan has stretched to the limit, which makes formal change necessary to make joint operations with the US forces easier and perhaps open the door to NATO-style security treaties with other countries. A survey in March 2012 by the conservative Yomiuri newspaper showed that 54 per cent of voters wanted some change of the charter, the first time that figure exceeded half since 2009. Thirtynine per cent favoured revising Article 9, while the same percentage said changing the interpretation was enough.

During his first term, Abe had managed to get Parliament to enact procedures for a referendum, and he set up an experts’ panel to outline scenarios where Japan should aid its ally. But he quit for health reasons before the panel submitted the report and his more dovish successor shelved it. This time around, Abe and his backers would make clear that their first target would not be Article 9 itself but a separate Article spelling out the need for a two-thirds majority in both Houses of Parliament to enact revisions. They might also want to reduce that hurdle to a simple majority so that subsequent changes are easier.

It is too early to say that given Japan’s unstable political scene, if it will allow Abe to stay in power long enough to achieve his goal. Japan has already had six Prime Ministers since 2006. All have seen their public ratings sink in a matter of months. Abe could suffer the same fate too if he falters at any moment.

Challenges in the Domestic Economic Front

ABE has promised to boost public works and talks of spending 200 trillion yen ($ 2.4 trillion) on projects over the next decade—about 40 per cent of Japan’s economic output. Many economists are troubled by the plan. Japan already has the heaviest public debt load in the industrialised world. Similar public works programmes in the past two decades have done little to counter the economy’s long stagnation. Abe’s plans are music to the ears of construction industry executives, who saw public works budgets slashed by a third by the DPJ, and have already boosted the stocks of builders such as Kajima Corp, Taisei Corp and Obayashi Corp. For example, it would be a boon for communities like Naganohara, which count on government investment to help the local economy.

During their tenure, the Democrats opposed the dam for the sake of opposing whatever the LDP had promoted. The DPJ stopped the $ 5.6 billion project after they won power in 2009 promising to switch focus “from concrete to people†, but later backtracked, faced by the high costs of killing it off despite doubts whether the dam was really needed. Half-finished bridges, ramps and roads now stand as a symbol of the Japanese politicians’ long addiction to concrete and a short-lived push to kick the habit. The proposed dam would flood part of Naganohara and turn its surroundings into a 300-hectare reservoir. Hundreds of people in this town of 6243 have already been moved. Government funds and a new artificial lake could bring new jobs and tourism to the area.

Another area that the LDP is likely to focus is on quake-proofing buildings, bridges, tunnels, dams and transport networks. That is bound to resonate after the magnitude 9 earthquake of March 2011 and a deadly tsunami killed nearly 20,000, triggered a nuclear crisis and caused over $ 200 billion in damages, making it the world’s costliest natural disaster. A collapse in December 2012 of a 1970s tunnel on a major highway also backs the LDP’s argument that Japan’s world-class infrastructure built during its post-war boom is ripe for a revamp.

Though the LDP’s election manifesto is short on detail, it is likely that about half the spending could come from the national Budget and the rest from the private sector and local governments. Under such assumptions public works would cost the Budget 10 trillion yen per year, twice as much as now. LDP lawmakers say they would find savings to limit extra borrowing. Spending 100 trillion yen over a decade would not be such a stunning figure.

It may be noted that massive investment in roads, train networks, ports and other infra-structure contributed, alongside exports, to Japan’s post-war boom in the 1950s and 1960s. Later on, the law of diminishing returns kicked in. As the focus shifted from meeting the rapidly growing economy’s needs to using public works as a way of stimulating growth, creating jobs and catering to special interest groups, economic benefits dwindled. Building dams and roads in depopulated areas can only have one-off effects. It is different from spending on highways and bullet trains linking big cities like Tokyo and Osaka during the rapid economic growth era, which had far greater multiplier effects by stimulating car purchases and other private spending.

The truism is that every 100 million yen spent on public works would only add 110 million yen to overall economic output and therefore if government spending stops, the economy would return to its slumber. Since the bursting of the speculative bubble in the early 1990s, successive LDP governments relied on public works—spending 110 trillion yen over 10 years—to try to revive the economy. It remained an economic policy tool of choice in the last decade, except under Prime Minister Junichiro Koizumi, who made efforts to consolidate Budget finances part of his reform agenda in 2001-2006.

The LDP’s rivals are, however, not enthused. They accuse the LDP that ruled Japan for over half-a-century of trying to resurrect the old pork-barrel politics. They say that the triple disaster of March 2011 has given the LDP a perfect excuse for creating demand for the construction industry. According to the old system, the Central Government made funds available
for public works projects that benefit local communities in return for their votes for the ruling party. Those, in turn, brought contracts for construction firms which kept cosy ties with bureaucrats, often employing former officials, and which supported LDP politicians with donations.

Abe plans big government spending to spur growth because the aggressive central bank easing what he has prescribed will take time to work. Already shares in Kajima, Taisei and Obayashi rose between 11 and 16 per cent since mid-November in anticipation of the election and an LDP win. Abe knows that monetary policy would not have an immediate impact on private investment and that could take one, two, three years to stimulate private investment, consumption and create jobs. For him, that would be precious time lost and Japan cannot afford to let that happen. Critics and economists, however, warn that the policy will fail if it is not accompanied by deregulation and other reforms. They warn that if all that Japan does is ‘baramaki’ (pork barrel), debt monetisation and massive fiscal spending, it will end in tears and the country will become Argentina of the 21st century, something similar to the collapse of the Latin American nation’s finances a decade ago.

Asessment

THOUGH the LDP was given a strong mandate largely as a result of Japan’s economic malaise during the DPJ’s three-year reign, the rebirth of the LDP and Abe has significant foreign policy implications, in particular for Japan’s role in Asia. Abe has been branded by the foreign press as a “nationalist†and “hard-liner†due to his conservative policy stances on North Korea and Japan’s territorial disputes with China, South Korea and Russia. Abe is likely to adopt a tempered and strategic approach to relations with the region.

In recent times, Japan’s relations with China and South Korea have been rocked over territorial issues. All the three East Asian countries have undergone leadership change. While China’s new leadership is likely to pursue the policy of its predecessors, the first woman President in South Korea is also not likely to enact any major foreign policy change, though there may be some subtle change in the thrust. Both Beijing and Seoul are concerned about Abe’s defiance of their protests regarding visits to the Yasukuni Shrine in Tokyo which honours Japan’s World War II war dead, including some war criminals. Abe visited the shrine as recently as last October, as the Leader of the Opposition. The symbolism of the Yasukuni visits, will however, be magnified now that he has become the Prime Minister. In the interest of not fanning passions in the region, it would be prudent on Abe’s part to be careful in making future trips.

 Abe’s approach to Japan’s territorial disputes could complicate bilateral relations with South Korea and China. In policy speeches leading up to the election, he indicated his firm view regar-ding Japan’s sovereignty over not only the Senkaku, but also the Takeshima Islands (Japanese-administered but claimed by South Korea as the Dokdo) and the Russian-adminis-tered southern Kuril Islands (claimed by Japan as the Northern Territories). At the LDP victory rally on December 16, Abe was equally unequi-vocal, stating: “The [Senkakus are] the inherent territory of Japan.... There is no room for negotiations about that.†It will be important to watch how this rhetoric is informed by Abe’s stated intention to revise the role of Japan’s SDF, which would provide a credible “silent hand†to any diplomatic effort for resolving the disputes.

In recent times, the dynamic geopolitical landscape in East Asia has undergone a major change. This is compelling Japan to adapt its force posture to new realities. In previous years, Japan had positioned the SDF predominantly on its northern island of Hokkaido, as a result of tensions with North Korea and, to a lesser extent, Russia. That has changed. The majority of the SDF are now repositioned to the southern islands. Defence spending is another priority. Japan currently caps spending on defence to one per cent of its GDP. However, there is significant pressure, both internally and externally, for Tokyo to increase this amount in the light of new responsibilities.

Notwithstanding such hawkish posture on his stated policy towards his neighbours, Abe will be careful not to alter Japan’s core strategy of increased economic engagement with China, South Korea and the Association of South-East Asian Nations (ASEAN). Abe is stated to have said that “China is an indispensable country for the Japanese economy to keep growing. Japan needs to use some wisdom so that political problems will not develop and affect economic issues.†Though China’s economy surged past Japan in 2011 to become the world’s second-largest economy, Tokyo knows the importance of trade and commerce that are vital to its economy and therefore has taken a proactive approach by signing Economic Partnership Agreements (EPAs) with India, Singapore, Malaysia, Thailand, Indonesia, Vietnam, Brunei and the Philippines. Japan is also in current EPA negotiations with regional heavyweights South Korea and Australia.

Some contemporary literature draw a pessi-mistic narrative that Japan is in permanent decline, unable to compete with Asia’s young and dynamic markets. Though it is true that Japan has significant demographic pressures (a low birth rate and a high proportion of pensioners) and economic challenges (high debt and low growth), it continues to innovate and has emerged as an important part of the supply chain in Asia.

China’s economy relies primarily on manufac-turing. Despite Beijing’s problems with Tokyo on territorial issues, China needs Japan’s foreign direct investment and niche technological products to complete its exports. Similarly, the growth of the ASEAN countries will remain contingent upon Japan as a secure player in the global supply chain. ASEAN will also stay close to Japan for geopolitical reasons as it looks to hedge against China. Separating politics from economics and directing Japan’s future course would be a challenge for Abe in the coming years.

Dr Rajaram Panda, formerly a Senior Fellow at the Institute for Defence Studies and Analyses (IDSA), New Delhi, is currently Guest Faculty, School of Language, Literature and Culture Studies (SLLCS), Jawaharlal Nehru University, New Delhi.