Few pundits had high hopes for Shinzo Abe’s re-entry onto the main stage of Japanese politics in December of last year. But here he is, and it looks like his economic “shock therapy” is jolting the country out of its two- decade long slumber. But is it a question of too little, too late? And what about China? RICHARD POPLAK.
No one is more bored by the grey sameness of Japanese politics than the Japanese. Twenty-five years ago, Americans were terrified that the Japanese were buying up every last corner of California, while iconic companies shifted their head offices to Tokyo. The not-so-veiled threat of yellow peril that was as eighties as big shoulder pads and Duran Duran now feels thoroughly outdated. We know the story – the inefficiencies in the Japanese economic system caught up with growth, and after an extended period of stagflation, the country barely grew at all through the 90s and zeroes.
Oh yes, Shinzo Abe has become Japan’s pitchman –“Japan is back!” – and he’s enjoying 70% approval ratings and all the other perquisites of the economic reformer’s honeymoon period. He has instituted the first stage of his much discussed Abenomics, which is, of course, the printing money phase. All this new cash has dropped the value of the yen, and helped Japanese exporters get a leg up on 2013, while the economy has posted a 3.5% bump so far this year. So far, so good.
But while the mint works overtime, prices have started to rise, and the grumblings are beginning. Wages haven’t risen in years, and consumers are starting to feel the pain exactly where Abe doesn’t want it felt – in their increasingly important wallets. Abe wants Japan’s ever cautious consumers, particularly retirees, to hit the department stores with their credit cards and bounce the economy further north. But that isn’t quite happening yet.
Next up, Abe has promised to get the blood moving through Japan’s sclerotic corporate system. He wants to institute a series of deregulatory moves that would allow competitors to enter a more open market. As you can imagine, this isn’t exactly thrilling the dark-suited upper crust, who have become somewhat used to a culture in which there isn’t much threat of wily Chinese coming in and cleaning their clocks with efficiency and hard work. But the notoriously guarded halls of, say, Sony, are suddenly echoing with investors who want to see returns. Something has to change, and Abe is betting that a more competitive corporate culture may help.
Then there are the usual fiscal stimulus packages that come with these sorts of things – the digging of tunnels, the building of bridges, the choo-chooing of new trains. As perhaps the most modern country in the world, it’s worthwhile considering how much new infrastructure Japan actually needs, as opposed to how much money will go to white elephants and the settling of political accounts. On the other hand, because Japan hasn’t grown in two decades, the threat of infrastructure rot (too say nothing of a disaster area or two that could use a lick of paint) is starting to seep in to the political consciousness. Perhaps it’s time to jazz the joint up a bit.
It’s not easy nudging a $5 trillion economy from an extended torpor, but Abenomics seems to be working, at least in the initial phase. But will it last? Japan has had brief resurgences before, but because the economy remains a closed loop, nothing really stuck. Abe promises that this time, things will be different – the country is open for business, consumers are confident, and growth is all but assured.
The dropping yen, however, makes Japan’s neighbours uneasy. And Abe’s bullish nationalism rankles the Chinese, who are Japan’s largest trading partner by far. The usual provocations regarding politicians’ visiting of war shrines continues apace, and deeply offends the Chinese. And while the dispute over the Senkaku Islands has simmered down, it upped the general level of belligerence to Defcon 4. Trust between the two countries has largely evaporated, and as Japan makes moves to extend the reach of its “peace force” (more of that fiscal stimulus), the ’hood gets a little more jittery by the day. Abe has, however, been conciliatory: “For me, Japan’s relations with China stand out as among the most important. I have never ceased to pursue what I called a ‘mutually beneficial relationship based on common strategic interests’ with China. The doors are always open on my side for the Chinese leaders.”
The critics, and they are numerous and vociferous, wonder how creating more debt makes sense. Japan already spends 25% of its budget on servicing debt, and doesn’t have any room to manoeuvre if faith in Japanese bonds evaporates. The economy’s very real structural issues could slam the international markets into a new recession in a heartbeat. As it stands, the Tokyo Stock Exchange is up 60% on last year, which is a sign of confidence in Abe. But one stumble and that confidence will disappear.
Make no mistake Abenomics is a grand vision, even if it is bereft of any radical economic ideas. In July’s upcoming elections, Abe should get the control of the Diet that he needs to get all the pieces of the plan moving in unison. Despite the jitters from China and the other locals, the world could use Japan’s economy functioning at a steady incline. God knows we don’t have the Europeans buying anymore.
“Japan is back,” said Abe, in a recent speech that will come to define his career. “Keep counting on my country.” DM
Photo: Japan’s Prime Minister Shinzo Abe delivers a speech to business leaders and scholars during a meeting hosted by Japan Akademeia in Tokyo May 17, 2013. The latest tranche of Japan’s growth strategy will aim to triple infrastructure exports and double farm exports by 2020, as well as boost private investment, Prime Minister Abe said on Friday. REUTERS/Issei Kato
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