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Hugh Young: Abe’s vision is still under scrutiny

Japan’s prime minister needs to make some tough decisions that will decrease his popularity even further.

Hugh Young

Japanese film studio Toho plans to shoot its first Godzilla movie in over a decade next year. For purists, the original man-in-a-rubber-suit incarnation beats any big-budget Hollywood remake. But the original 1954 black and white film had a serious anti-nuclear message, which resonated with a nation that suffered the horrors inflicted upon Hiroshima and Nagasaki just nine years earlier and was alarmed by US hydrogen bomb tests in the Bikini Atoll.

For Japanese audiences who had survived the destruction of the second world war, seeing images of a city laid waste by forces beyond their control would not have seemed that far-fetched.

Prime Minister Shinzo Abe, fresh from an election victory, is expected to push ahead with a plan to restart Japan’s nuclear power programme that had been suspended after the Fukushima Daiichi nuclear accident in 2011.

Many people who voted for the Liberal Democratic Party during polls to elect representatives to parliament’s Lower House last month harbour grave misgivings over tying the nation’s economic future to an energy source particularly susceptible to the violent tectonic activity the region is known for.

They may also feel uncomfortable with Abe’s vision of a more assertive Japan and his intention to rewrite the nation’s post-World War II pacifist constitution by extending the armed forces’ mandate beyond “self-defence”.

And then there is Abenomics, the prime minister’s national revival plan that seeks to ease the economy back onto a path of sustainable growth. While Abe would like to portray the election victory as a referendum on his economic policies, the fact remains many Japanese do not think they are working.

Price rises have outpaced wage gains and, like elsewhere in the world, the biggest beneficiaries have been the wealthy amid rapid advances in property and share prices. Cash-rich companies are still not making the sort of investments that create more jobs at home. People do not feel better off.

A sales tax increase in April damaged consumer sentiment so much that it threw the economy into recession, forced central bank policymakers to ramp up stimulus policies and necessitated an 18-month postponement of a further hike in the sales levy.

So Abe was not swept back into office on the sort of euphoria that brought Narendra Modi to power in India earlier this year or even Barack Obama to the White House in 2008.

True, the LDP and its partners, the Komeito party, secured a two-thirds majority of the 475-seat Lower House for a so-called “super-majority” that ensures the coalition retains the power to override the legislature’s Upper House. However, voter turnout of around 52 per cent suggests widespread indifference. 

The harsh reality is that Abe won simply because there was no credible alternative. The opposition Democratic Party of Japan failed to regain the public’s trust after a disastrous period in power from 2009 to 2012 that had been characterised by indecision and infighting.

There is also a sense of resignation that Japan has crossed the Rubicon with regards to economic policy and that turning back, or changing course, could be even more damaging for the country.

With four more years, Abe could become the longest-serving Japanese premier since World War II. There have been 17 in the past quarter century alone but he may have time to make a real impact, a luxury only a few of his predecessors had.

Regardless of his other ambitions, the priority must now be the economy. Japan is in danger of slipping back into deflation and further rounds of central bank stimulus may only produce diminishing returns.

Abenomics has only had two years to deliver results. Only the most wildly optimistic could have expected any real progress in shaking up parts of the economy that are little changed in over half a century.

For example, due to a perverse system of agricultural subsidies, Japanese rice farmers are paid by the government not to grow rice. Employees (those who are lucky enough to have full-time jobs) enjoy such an extraordinary level of job security that companies are afraid to hire. Many parts of the economy remain closed to foreign competition. Some 70 per cent of companies do not even pay tax.

Abe needs to make many tough decisions that will make him unpopular. But if he is serious about reversing this narrative of national decline he will have to alienate political donors, constituents and even members of his own party, many of who come from rival factions.

Like a super-sized reptile crashing through a cityscape, it may be time for some creative destruction.  

Hugh Young is managing director at Aberdeen Asset Management Asia



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