Renewed Mandate for Abenomics

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Dr Shamshad A Khan presents a perspective from Ground Zero

When Japan’s economy posted negative growth in two consecutive quarters and slipped into a recession, opponents of Prime Minister Shinzo Abe blamed his economic policies for pushing Japan into yet another economic slumber. His approval ratings also plummeted. There is a unique co-relation between Japanese prime ministers’ survival in office and their public approval ratings. Many prime ministers in the past have resigned or paved way for their successors within the party citing low approval ratings of their leadership by the public. In 2009, when the opposition Democratic Party of Japan (DPJ) wrested power from the Liberal Democratic Party (LDP), the approval ratings of the cabinet of the then Prime Minister Taro Asosunk were nine percent. But the prime minister rejected the suggestion to announce snap polls and let the Diet complete its full term. This gave enough time to the Opposition block to consolidate its strategy and garner public disenchantment in its favour.

However, Abe was in no mood to hand over the baton to the next leader so early. He exercised his prerogative of calling snap elections, as implemented by several incumbents before him. The elections on December 14, 2014 sought a fresh mandate for his policy of ‘Abenomics’ – the policy that seeks to revive the Japanese economy through a massive fiscal stimulus, more aggressive monetary easing, and structural reforms to boost the country’s competitiveness. Critics, however, maintain that Abe called snap elections with two crucial strategies in mind. Firstly, to prevent Opposition parties from gaining time to consolidate their base, and, secondly, to avoid any political challenges within the party, which has three clear factions competing to wrest the presidency within the party. Japan has maintained a unique precedent where the president of the ruling party becomes the country’s prime minister. With presidential elections due within the Liberal Democratic Party (LDP) in 2015, Abe’s plunging public approval ratings could have been cited by his opponents in the next LDP presidential elections. Now since Abe has steered the party to a massive victory, he can claim a stronger mandate to lead the party and the country.

Abe Gamble Succeeds

In the election campaigns, Prime Minister Abe highlighted the greatest achievements of Abenomics, including improvements in employment and wages, and insisted that it was ‘the only way’ for Japan’s economic revival. He kept aside contentious issues such as constitutional revision, restart of nuclear reactors and relocation of US bases in Okinawa, which have failed to receive support of Japanese society. The LDP also shied away from making Japan’s entry into the Trans Pacific Partnership (TPP) a poll plank. The LDP’s local chapters in an effort to woo farming communities, one of the party’s traditional support bases, promised not to allow tariffs to be abolished on certain farming products, a key demand in TPP negotiations. The Opposition parties, including the Democratic Party of Japan (DPJ), in their election campaign criticised Abe for increasing the economic gap in society, as Abenomics had helped the rich and major exporters. The Japanese Communist Party in its campaign pledged to create a nuclear free Japan and also promised the electorate that an increase in their strength in parliament would be followed by the demand to reverse the cabinet decision to reinterpret the constitution and provide more powers to Japan’s defence forces. The New Komeito, LDP’s coalition partner, voiced its differences with the LDP over the issue of Collective Self Defence, by stating that it ‘will lead Japan to follow the path of a peaceful country and will never allow it to use force on other countries’ soil.’

As the economy slid back to recession before the polls, the Abe administration postponed the planned consumption tax hike till April 2017. The New Komeito has promised to cut consumption tax hike on certain daily necessities to ease the impact on low wage consumers. But the LDP did not make its stance clear on the issue. It may be noted that Japan increased consumption tax from five to eight percent last year to decrease its debt-to-GDP ratio and rescue the country from two-decade-old deflation.

The weak Opposition failed to form a coalition and present a clear alternative to the LDP, thus enabling Abe’s gamble to succeed. The LDP won 291 seats in the 475 member lower house of the Japanese Diet, while its coalition partner New Komeito won 35 seats, paving the way for the ruling coalition to gain two-thirds majority in the Lower House. The majority in the Diet will help Abe pass various legislations even if the Upper House, where Opposition parties are in majority, does not agree with his policies. Notably, the general election registered a 52 percent turnout, the lowest since 1947, attributed to a combination of inclement weather and lack of electoral options.

Whatever the reason, Abe’s victory has enabled him to consolidate his grip over the party and the administration. But he still faces the challenge to steer the country out of protracted deflation and economic slump, despite the confidence generated by the fresh mandate to implement Abenomics. New data indicates that the economy during the last two consecutive quarters contracted by 1.9 percent on an annual basis, and not by 1.6 percent as indicated earlier. Japan’s debt-to-GDP ratio stands at 226 percent and the IMF expects it to rise to 245 percent of GDP by the end of this year. But the saving grace for Japan is that the government owes these debts to its own public, which is unlikely to push the country towards a fiscal crisis as witnessed in Greece.

The Abe administration introduced a higher consumption tax in April 2014 to boost government revenue and reduce debt, which increased to roughly $8.5 trillion. But this move has impacted the sale of big ticket items such as houses and luxury cars, and burdened low income families. Abe has encouraged employers to raise employee wages to reduce the impact of the consumption tax hike and ensure economic fluidity. The stimulus packages and weak yen have helped exporters. The decrease in global oil prices has also brought some relief to Japan. On December 27, the Abe cabinet announced yet another stimulus package of 3.5 trillion yen to revive stagnant rural economies. However, much depends on Abe’s decision to shoot the third Abenomics arrow of structural reforms, something that economists have been urging him to initiate.

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Author

Dr Shamshad A Khan

Dr Shamshad A Khan is Research Fellow at the Indian Council of World Affairs, New Delhi. He is presently a Visiting Research Fellow at the Japan Institute of International Affairs (JIIA), Tokyo. The opinions expressed in this article are his own, and do not necessarily reflect the views of JIIA.

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