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It was supposed to be Japanese PM Shinzo Abe's narrative to control, but ever since he called for a snap election last week, it has been Tokyo Gov. Yuriko Koike, who has dominated attention with her new political party. (Photo by Masayuki Terazawa)

Inside Abe's election gamble

The prime minister wasn't counting on Yuriko Koike

GAKU SHIMADA, Nikkei staff writer and KEN MORIYASU, Nikkei Asian Review chief desk editor | Japan

Four years after telling traders at the New York Stock Exchange to "buy my Abenomics," Japanese Prime Minister Shinzo Abe returned to Wall Street last month to give an update on his progress.

Sounding like a man limbering up for the campaign trail, Abe proudly rattled off a list of statistics that showed how much has improved in Japan's economy since his last visit. "Economic growth has risen for six consecutive quarters -- something that has not happened in 11 years," he said. The percentage of listed companies with two or more independent outside directors has risen to 88%, up from a mere 17% five years ago.

The numbers are there. Unemployment is just 2.8%, down from 4.0%. If traders had listened to the Japanese leader in 2013 and invested in the Nikkei 225, they would have earned a return of 37%.

While he acknowledged Abenomics has not lifted Japan out of its two-decade-long deflation, he said he would "absolutely achieve" reforms that would finally crack the country's long malaise. "I will invest the entirety of my political resources to open up the future of Japan," he said.

It was an assured performance from a prime minister who had been feeling a surge of confidence in the previous weeks. After a year in which his poll numbers had been dragged down by scandals, Abe suddenly sensed that the winds were shifting in his favor -- in large part due to the crisis in North Korea. As Kim Jong Un launched missiles over Japanese territory and conducted a massive nuclear detonation, the country seemed to be rallying around its leader. With the opposition party in disarray, Abe saw the opportunity he had been waiting for.

Five days after the speech in New York, Abe, 63, announced that he would dissolve parliament and hold a general election on Oct. 22. But from the very beginning, the prime minister lost control of the narrative with the emergence of another charismatic politician: Tokyo Gov. Yuriko Koike.

The 65-year-old former TV anchorwoman became one of Japan's most popular politicians last year when she braved the barrage of criticism from Liberal Democratic Party elders to run for Tokyo governor. Abe's ruling LDP had prepared a more conventional candidate -- a male ex-bureaucrat -- who she ended up easily thrashing in the election.

Lawmakers in Japan's lower house cheer the dissolution of the chamber on Sept. 28. Opposition parties boycotted the session. (Photo by Uichiro Kasai)

This time around, Koike was not supposed to be in the picture. One of the reasons Abe called for a snap election this early -- he had until December 2018 to do so -- was to go to battle before the popular Koike was ready to make a play. After all, she was just beginning to roll out her policies as governor, such as turning Tokyo into a global financial city.

But Koike moved quickly. On the day that Abe made the announcement of the election, Koike launched her new party, Kibo no To, or Party of Hope, eating into Abe's airtime and giving the media an exciting new storyline. Though she denies interest in running for the general election herself, her popularity and record of delivering election surprises has spurred talk that she could become Japan's first female prime minister.

Whether or not she decides to challenge Abe, she and her Party of Hope have changed the dynamics of the election, forcing the opposition parties to realign.

Suddenly, Abe is facing a potential Theresa May moment. The U.K. Prime Minister had hoped to cement her leadership by calling the general elections in June. She, too, benefited from a weak opposition and a strong lead in the polls. But after running an uninspiring campaign against an energized rival, she lost seats in parliament and emerged a damaged leader.

Dissolving the parliament and calling for a general election is the single most powerful weapon that the prime minister has in his possession. With a stroke of the hand, he effectively fires 475 members of the House of Representatives and makes them fight for another term. The prime minister could gain significant political capital -- or lose his job, as so many of Abe's predecessors have learned through bitter experience.

Abe has been looking at the calendar throughout his almost five-year tenure, calculating the best moment to pull out his sword. For some time, he has thought that 2018 may be a bad time to call an election. In April, Bank of Japan Gov. Haruhiko Kuroda's term expires. Summer marks the 40th anniversary of the signing of the Treaty of Peace and Friendship between Japan and China, and Chinese President Xi Jinping is expected to make his first official visit to Japan as President. In the fall of 2018, Abe faces re-election to his third term as party leader.

As he has made these political calculations, one issue hung in the air: how to achieve his dream of amending Japan's pacifist constitution. Abe made this clear during a private meeting on Aug. 10 with his close confidant, Deputy Prime Minister and Finance Minister Taro Aso, at the prime minister's private house in Tomigaya, Tokyo.

Both hailing from historic political families, Aso has encouraged and supported Abe from the outset of his second stint as prime minister. "What is the one thing you would like to do?" Aso reportedly asked his friend.

"Constitutional reform," Abe replied firmly.

Bank of Japan Gov. Haruhiko Kuroda has played a key role in Abenomics, but his term expires in April. (Photo by Wataru Ito)

His path toward achieving this is not straightforward. An internal poll conducted by Abe's LDP hinted that his coalition would certainly lose seats from his current overwhelming majority if he held the snap election. To risk losing his two-thirds majority would seem irrational, considering the procedures needed to amend Japan's constitution: Abe would need approval by two-thirds of both chambers of parliament to hold a national referendum -- which would be decided by a simple majority.

Yet the decision to call for a snap election, despite the odds, does not signal that Abe has given up on the constitution. At the heart of his calculation is the belief that the North Korean crisis would build a broad national consensus for strengthening the country's security, starting with explicitly acknowledging the presence of the Self-Defense Forces.

Abe regularly consults the Ministry of Foreign Affairs to assess the situation on the Korean Peninsula. Upon hearing from his diplomats that the North Korean crisis will not let up before year-end, Abe's resolve to go ahead with the elections strengthened.

"But why risk losing the seats?" his Chief Cabinet Secretary Yoshihide Suga protested. Abe's logic was that it was not the two-thirds majority in parliament that was the main obstacle to the constitutional amendment, but the national referendum that followed.

Abe understands the risks well. He had watched how U.K. Prime Minister David Cameron had called a referendum on Brexit and lost. If the referendum to amend the constitution was rejected, he would go down in history not as a conservative hero, but as the man who lost the opportunity -- maybe forever.

Koike's decisive actions in the past days have caught Abe's team by surprise. If losing several seats in the election was a given, losing his title of prime minister was not. Koike's initial blitz and the euphoria that accompanied it had the prime minister's team sweating more than they would have liked to.

Yet Koike is not without her share of challenges. The early timing of the election has forced her to absorb the main opposition Democratic Party, which has split into two camps: those who will back Koike's party and a new party of left-leaning candidates led by Yukio Edano, the Democratic Party's deputy president. Without candidates, Koike's Party of Hope cannot have enough members of the lower house to choose its own prime minister. Bringing in some of the Democrats helps to address the numbers issue, but dilutes the conservative nature of Koike and her party.

Koike's father Yujiro was a trade merchant who was also known to be a conservative political enthusiast. Politics and geopolitics were the usual topics of the Koike household dinner table.

Yujiro was a supporter of right-wing firebrand Shintaro Ishihara -- who later went on to become Tokyo governor and contemplated using the capital's budget to purchase the Senkaku Islands in the East China Sea from private owners to counter China's claims of sovereignty.

In 1969, as a member of Ishihara's new right-wing party, Yujiro ran for a seat in the lower house only to lose. Yuriko, then a high-school student, was seen sobbing in her father's campaign office that night.

Seeking a fresh start, Yuriko Koike went to study Arabic at Cairo University. After a stint as an Arabic translator, Koike became a news anchorwoman at TV Tokyo. One of her guests on the show was Morihiro Hosokawa, the former governor of Kumamoto Prefecture who was preparing to launch a new political party to counter the long-ruling LDP.

It was 1992. After the show, Hosokawa scouted Koike to run with him in the upper house election that summer. Both were elected, and by the following year, Hosokawa was prime minister.

Weaker yen, stronger exports

If Abe has been driven by his obsession with the constitution, he plans to frame his campaign around the economy. Abenomics has always been his path to his true dream of constitutional reform.

After leaving office the first time around due to health reasons in 2007, Abe spent time studying economics. He held study groups with experts to cover an area he acknowledged was one of his weaknesses. Through those sessions, he settled on three things that were needed to revitalize the Japanese economy: dramatic monetary easing, robust fiscal policies and policies for growth to spur private investment. Those later became the "three arrows" of Abenomics. While economists give his programs mixed reviews -- particularly when it comes to structural reform -- there have been real signs of improvement.

This week, the closely watched Tankan index covering all industries and companies of all sizes reached its highest reading since 1991. Exporters have benefited from a weaker yen, and there are real signs of improvement in the labor market. Wages have been moving higher, too, though mostly at the lower end of the job market. (See sidebar.)

Many challenges remain, however. Inflation remains close to zero, and personal consumption is still weak.

A key component of Abe's economic plan is to raise the consumption tax -- an idea he has shelved twice -- to 10% from 8% in October 2019. He wants to invest some of the revenue to fund free education, part of an effort to create a system "oriented to all generations," not just retired seniors. Such measures, he told the crowd at the NYSE, were needed to tackle Japan's biggest challenge: the disruptive combination of an aging society with a falling birthrate and a shrinking population.

Koike's Party of Hope wants to suspend plans for the second consumption tax hike -- one of only two major policy areas where her party differs from Abe's LDP. (The other is nuclear power, which Abe favors and Koike is against.)

Robert Feldman, senior adviser at Morgan Stanley MUFG in Tokyo, says Abe's plan to raise the consumption tax and spend a share of the proceeds is "essentially a big-government philosophy."

"In contrast, the Party of Hope has endorsed a freeze on consumption tax hikes, and a focus on more efficiency in spending," he said. "This is a small-government philosophy. In this sense, the [Party of Hope] platform is closer to Abenomics than the LDP platform."

Dreams of his grandfather

During their private chat in August, Aso advised Abe to recall the experience of his grandfather, Prime Minister Nobusuke Kishi, in 1960. Fresh from a visit to Washington, where he signed a revision to the Treaty of Mutual Cooperation and Security between the U.S. and Japan, Kishi was confident that he would be victorious if he called for an election at that point.

But Shojiro Kawashima, the secretary-general of the ruling LDP, opposed vehemently, and Kishi called off the plan. In the ensuing months, huge demonstrations opposing the treaty -- fearing that it would drag Japan back into war -- encircled parliament and the prime minister's office, and Kishi had to resign.

Kishi wanted to change the constitution but missed his chance. Abe is desperate not to repeat his grandfather's mistake. There is little chance he will forget it: He keeps copies of his grandfather's memoir at his home, his office and at his second house in Yamanashi Prefecture.

On May 3, Japan's constitution memorial day, Abe told a gathering in Tokyo through video message his road map for constitutional reform in more detail than ever before. "2020 is the year when a new Japan will kick off, and I strongly hope the year will see the new constitution come into force," he said.

In an interview published in the conservative Yomiuri Shimbun, Abe cited Article 9 of the constitution as a specific item for revision, stressing that it is "imperative to alter the situation in which the Self-Defense Forces are dismissed as unconstitutional in my generation."

Japan's pacifist constitution states in Article 9 that "land, sea, and air forces, as well as other war potential, will never be maintained." Yet Japan has maintained the SDF, with huge budgets and modern weapons, in a legally gray zone.

Abe's proposed revision would leave the pacifist elements of Article 9 intact and add a clause justifying the existence of the SDF. Whether the technical tweak is a baby step toward a more fundamental rewrite in the future, Abe has not clarified.

Koike, a former defense secretary, is proposing a more comprehensive overhaul of the constitution, including non-defense-related articles.

Abe and his conservative supporters believe the time is right to restore Japan's "strength" so as to face the national security challenges in Northeast Asia. Whether the public agrees will depend in large part on whether Japanese citizens -- like the traders on Wall Street -- "buy Abenomics."

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