In 2012 Japan’s Prime Minister Shinzo Abe was elected based on economic promises that he ultimately did not keep. Instead, he got things done that he was not elected to do. His election victory now gives him two additional years to achieve what he promised to achieve. If he does not succeed, Japan will be the worse off for it. Europe can only remain on the sidelines of this project. Nevertheless, it should make its voice heard where its interests are concerned – on the Japanese economy and on strategic developments in the Asia-Pacific region.
In 2009, for the first time ever, the opposition Democratic Party was elected into government in Japan. It managed the triple catastrophe of the earthquake, the tsunami, and the nuclear incident of 11 March 2011 remarkably well. But in the end, it was defeated by the domestic impact of China’s aggressive push over the Senkaku/Diaoyu Islands territorial conflict and by its own administrative inexperience (its major figures came to power directly from civil society movements).
Abe was almost disgraced during his first term in office in 2006–2007, but in December 2012, he came back with a vengeance.
Abe was almost disgraced during his first term in office in 2006–2007, but in December 2012, he came back with a vengeance. His message was that he would get things right on the economy and he made his point in resolute language that contrasted with the insecurity projected by the government of the day. He began to take action practically on his first day in office. Of the “three arrows” of “Abenomics”, he quickly fired two: monetary easing on a large scale and huge public spending measures. As a result, the yen went from 82 to the dollar in December 2012 to 120 to the dollar today and exports rose from 5,300 billion yen at the end of 2012 to 6,700 billion in October 2014. Just as quickly, Abe achieved popularity rates that had not been seen in Japan since the years of Prime Minister Junichiro Koizumi (in office from 2001 to 2006), causing the opposition to despair.
The third arrow would have been the structural reforms that Japan had avoided throughout almost two “lost decades”: increasing competitive pressure in the economy by easing restrictions for local and foreign companies and by establishing a range of free trade agreements (most importantly, the Trans-Pacific Partnership, TPP, which will include the United States), as well as by freeing up Japan’s restrictive healthcare sector and by bringing women into the workforce in larger numbers. Abenomics was supposed to prove its success by summer 2014, when deflation was to have been replaced by an inflation rate of up to 2 percent and wages were to be higher than the inflation rate. But this never happened. Some of Abe’s reform efforts were bogged down by intraparty strife: for example, the agricultural sector is opposed to TPP. Others were insufficiently supported by the business sector – even though corporate taxes were lowered by three points. But the cheap yen increased import costs, making it more attractive to invest and produce abroad. So, instead of raising standard wages, companies, if they increased anything all, raised only bonuses (which can easily be scrapped, making the additional income unreliable).
The economy’s problems were compounded by Abe’s failure to solve Japan’s energy problem.
The economy’s problems were compounded by Abe’s failure to solve Japan’s energy problem. All but four of Japan’s 52 nuclear power stations stand idle because of public opposition after the Fukushima disaster. But instead of introducing a renewable energy concept – or any other kind – Japan is paying for energy imports to replace the one-third of its energy needs formerly supplied by nuclear power (the only relief has been the drop in world oil prices, but at the same time, the yen’s value has decreased by more than 20 percent). The effect of the increase in the consumer tax by three points was therefore made worse by higher electricity and heating costs. As a result, consumers did not have significantly more money in their wallets, and demand did not increase significantly, especially not in one of the most important growth indicators, the housing market. Meanwhile, Japan’s debt reached 244 percent of its GDP. By the third quarter of 2014, the economy was contracting. Japan was in recession.
Abe did have successes in other areas. He travelled extensively throughout the region from the very start of his administration and thus made a realignment in the region possible. This complemented US President Barack Obama’s “rebalancing to Asia” initiative and established a clearer profile of Japan’s goals and its ambitions to work more closely with India and the countries of Southeast Asia. Two exceptions are China and South Korea, where fundamental bilateral problems seem intractable in the short term – but a speedy resolution to the problems in Japan’s relations with these two had not been expected either by experts or by the Japanese public.
Abe has not achieved much in terms of reducing distrust of his policies in Washington.
In close consultation with the US, Abe redrafted Japan’s defence guidelines based on a re-evaluation of Japan’s strategic environment in ways that made it easier to establish closer military cooperation with its key alliance partner, the US (using somewhat dubious linguistic artistry, called “proactive pacifism”). However, surprisingly, given all these efforts and the commonality of interests between the US and Japan, Abe has not achieved much in terms of reducing distrust of his policies in Washington. If it was not clear before, this became evident at November’s Asia-Pacific Economic Cooperation Summit in China, where Xi Jinping did a lot to humiliate his Japanese guest, as Obama stood by and gave not the slightest perceivable measure of support to his Japanese ally. Abe’s redefinition of the parameters of Japan’s security policy necessitated a reinterpretation of Article 9 of Japan’s constitution, which up until then had been understood as forbidding any military action by Japan necessary to aid an ally. Originally, Abe had wanted to change Article 9 of the constitution as well as others of its provisions. But he gave up the effort when it became clear that he would have neither the necessary two-thirds majority in parliament nor popular support for what might be called a revisionist agenda to re-evaluate the way Japan has so far regarded – and publicly regretted – its wartime past.
Lastly, Abe succeeded in getting a new state secrets law through parliament. The government can use this law to classify a wide range of material from defence, diplomacy, and other fields as “state secrets”, threatening both those who make such information public and the media who use it with heavy punishment. The government has been criticised for failing to install a neutral and independent oversight body to deal with the law.
The bottom line was this: despite all his achievements, Abe’s popularity began to wane dramatically from this summer on because he did not achieve what he was elected to achieve.
The bottom line was this: despite all his achievements, Abe’s popularity began to wane dramatically from this summer on because he did not achieve what he was elected to achieve. With only two years ahead of him, he chose to prolong his term in office, claiming he needed a renewal of his mandate because he had decided to postpone the planned increase of the consumption tax hike. He ran on his promise of 2012 and on the slogan, “There’s no way but this” (reminiscent of German Chancellor Angela Merkel’s often repeated statement that there was “no alternative” to her policies). Abe’s victory was a given, because the snap election called for 14 December allowed only an electoral campaign period of 12 days, and the opposition was in disarray. In the end, with only some 52 percent of the elctorate bothering to vote at all, according to the last tally he lost only five seats, with his coalition partner – Komeito – gaining four, so that Abe’s coalition with 325 seats out of 480 still holds their two-thirds majority. “We don’t have much time”, Abe told The Economist on 5 December. But he now has four years’ time once again, with only one major task remaining: getting that “third arrow” off the bowstring and getting the economy right. If he does not, he will be remembered as a prime minister who had singular opportunities, singularly missed.
In Europe, views on Abe’s economics – which follow Paul Krugman's prescriptions almost to a T – are widely divergent. Europe, however, can only hope that Japan's economy gets back on its feet for the long term, and that the free trade arrangement presently under negotiation with the European Union becomes a reality. European governments should make this point clear in their conversations with their Japanese counterparts. Another point that they should stress is that Europe needs Japan as a stable and reliable partner in East Asia more than ever, at a time when China is causing uncertainty and concern about its future policies inside and outside of the country.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of its individual authors.