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Abe must make upper-house elections count with bold reforms

Japan's leader has little to show for his near-record time in office

| Japan
After nearly seven years Abe has picked only the lowest-hanging fruit. (Photo by Takaki Kashiwabara)

Japan's July 21 upper house election is looking to be a rather curious affair.

By any objective yardstick, Shinzo Abe's Liberal Democratic Party should take a real drubbing. The economy, which the prime minister promised to revitalize when he took office in 2012, is flagging. Real wages just fell a fifth straight month. The 0.2% drop in May from a year earlier is the latest reminder that Japan Inc. is not fattening paychecks as hoped.

The prime minister's foreign policy looks no healthier. In return for his awkward embrace of Donald Trump, Abe is watching the U.S. president's trade war derail Japan's best growth run since the 1980s. Dozens of meetings with President Vladimir Putin yielded zero progress on a long-standing territorial dispute with Russia. Abe and Chinese president Xi Jinping are barely talking as Beijing's Belt and Road juggernaut remakes Southeast Asia.

And yet the ruling LDP is almost sure to win in a landslide, according to opinion polls. The disarray among opposition parties surely helps. So does Abe's success in wooing younger voters who, despite few big successes, appreciate his zeal for raising Tokyo's stature in world affairs.

At present, July 21 is a vanity contest, and nothing more. Abe's party does not even pretend to have new ideas or policies. Opposition parties are not offering bold alternatives to counter LDP complacency. These elections are about one thing: Abe's quest to be Japan's longest-serving prime minister. Come November 20, Abe would top Katsura Taro's premiership in the early 1900s.

But why not make this next term count? With a bold cabinet reshuffle and a renewed focus on structural upgrades, Abe could win a solid place in the economic record books.

Investors have valid reasons for cynicism. Since the 1990s, executives have grown jaded by a revolving door of leaders promising to defeat deflation and rekindle Japan's animal spirits.

Abe's mentor, Junichiro Koizumi, became prime minister in 2001 pledging "reform with no sacred cows." His administration at least helped clean up the bad loan crisis of the 1990s, and he began the process of privatizing Japan Post, which then ran the world's biggest savings bank.

When Abe took the reins in 2006, maintaining reformist momentum was job one. Instead, he pivoted to revising Japan's pacifist constitution and in a year was gone.

Abe returned to power in 2012, but after nearly seven years he has picked only the lowest-hanging of fruit, reform-wise. Instead of modernizing labor markets, catalyzing a startup boom, cutting red tape and empowering women, Abe bet it all on the Bank of Japan.

The BOJ's aggressive quantitative easing did drive the yen 30% lower, sparking an export surge and a 57% rally by the Nikkei Stock Average in 2013 alone. But where is the forward motion to raise competitiveness and rediscover that innovative mojo that once changed the world?

It is worth noting that as SoftBank founder Masayoshi Son bets $100 billion on potential tech unicorns around the globe, he has not invested in a single one in Japan. This is a sobering vote against a nation that conjured up the Walkman, the digital camera, the DVD, the handheld electronic calculator and androids.

Concerns abound that history is repeating itself. Abe is still gunning to modify the constitution's article 9 "peace clause," allowing Japan to field a conventional military. Fair enough, so long as most of Japan's 126 million people agree (polls show they do not).

What voters can agree on is that the economic trajectory needs some serious readjustment. How can Abe regain momentum?

First, shake up a rather tired cabinet. If Abe wants a reboot, no target looms larger than replacing Taro Aso, Japan's gaffe-machine of a finance minister. In May, the LDP circulated an anti-gaffe manual after a spate of unfortunate rhetorical missteps.

In a recent example, Aso in February blamed women who did not have kids for Japan's financial troubles. In 2018, Aso dismissed sexual harassment charges against a top finance ministry official. That came a year after he said that while Adolf Hitler was "no good, his motive was right."

Aso's track record when it comes to pushing through structural change or curbing Tokyo's massive debt is spotty. And Aso, who turns 79 this year, may be generationally incompatible with Tokyo's designs on being a global hub for fintech, cryptocurrency trading and Asia's next wave of unicorns.

Nor have Abe's top economy ministers Toshimitsu Motegi and Hiroshige Seko put big reform wins on the scoreboard. It is high time Abe took stock of where the supply-side Big Bang he advertised fell short.

Abe should add some female talent into the mix. For all his talk of "womenomics," his cabinet includes just one female minister. Japan Inc. loves a precedent, which Abe could provide. Nothing might make women "shine," as Abe says, like naming a woman to run the finance ministry, the foreign ministry or take the chief cabinet secretary portfolio.

Next, he should set out an ambitious schedule for restructuring moves. Come September, when the Diet session heats up, he could lay out a clear timeline for progress. By October, Abe's team could present lawmakers with bills on which to debate and vote.

With a show of political courage, Abe could prod lawmakers to loosen rigid labor laws, devise tax incentives for young entrepreneurs or offer greater incentives to welcome women into the executive suite.

Tax incentives and regulatory tweaks might do wonders to import more foreign talent. That is vital both to offset an aging population and to morph Tokyo into a thriving financial center that has Hong Kong and Shanghai looking over their shoulders.

A more diversified energy policy, one that places renewables over nuclear power, could create new high-paying jobs. For too long, the LDP has been captive to the "nuclear village" of pro-reactor lawmakers, investors and academics. A greater focus on new power sources to sell to China, India, Indonesia and beyond could enliven growth.

Finally, he must avoid own goals. Let us, for example, admit that October is a terrible time to go ahead with a sales tax hike. The last one in 2014, from 5% to 8%, caused a mild contraction. The next step to 10% comes as the trade war hurts exports and China, Japan's main customer, sputters.

Abe may soon have what arguably no Japanese leader ever had before: a revival plan the public supports, reasonable approval ratings -- above 47%, says Kyodo News -- and seven-plus years in power.

It is past time Abe used this window of opportunity to raise living standards and strengthen Japan's global standing. The question is, will he? Waiting is no longer an option.

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades"

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