Tuesday, July 2, 2013

Abe's '3 arrows' to revive Japan struggling to hit target

Jul 01, 2013

The Japanese Prime Minister is facing a lacklustre economy, political apathy and strained ties with neighbours as he bids to turn the country around.

By Kwan Weng Kin

IF THERE is one word that characterises Japanese Prime Minister Shinzo Abe's first six months in office, it is Abenomics.

A portmanteau of Abe and economics, it refers to the Prime Minister's potpourri of policies aimed at ending two decades of deflation and revitalising the economy.

In the past six months, Mr Abe has also sought to actively raise Japan's diminished profile, visiting 13 countries and attending a Group of Eight industrialised nations (G-8) summit.

Even after half a year, the Abe administration still enjoys relatively high popularity ratings, in the 60 per cent range, something not seen in recent years for Japanese governments.

But it is Abenomics that stamped the leader's comeback after a disastrous 12 months as premier six years ago that many thought had killed his political career.

It will be the efficacy of Abenomics - or the lack thereof - that will define the rest of his tenure, which could last at least till the next general election in 2016.

Putting the Japanese economy back on its feet is not the only aim of Abenomics.

Mr Abe realises that Japan needs to become economically vibrant again in order to regain its rightful place as a leading power in the region, especially as it has been pushed by China from second to third place in the world economic rankings.

Last December, when his Liberal Democratic Party (LDP) recaptured the reins of power from the Democratic Party of Japan (DPJ), Japan was struggling to cast off "two lost decades".

The first was triggered by the asset bubble collapse in the early 1990s. From 2003, the economy was weighed down by both the decline of Japan's workforce due to the rapid greying of its population and the shrinking domestic demand due to a falling population.

Economic turnaround was further delayed by the March 11, 2011 earthquake and tsunami disaster while a high yen, dampening exports, added to Japan's woes.

Soon after Mr Abe took office, Abenomics became his byword.

It is composed, to use Mr Abe's parlance, of "three arrows".

The first two, bold monetary easing by the Bank of Japan (BOJ) and heavy government spending, aim for a quick fix. The third, structural reforms, is needed for longer-term growth.

Skyrocketing stock prices and rapid weakening of the yen ensued when the BOJ went to work in early April, but the initial euphoria is now over.

In early May, the economy saw wild swings in stock prices and the yen rate.

The latest survey by the influential Nikkei business daily found that only 55 per cent of Japanese thought well of Abenomics.

Said Nikkei in its June 17 editorial: "Since coming to power last December, Abe and his team have continuously promised to reduce regulatory burdens and improve the business climate. So far, they have not delivered."

The much-hyped "third arrow" turned out to be nothing more than a set of lofty numerical targets such as boosting private capital investment to 70 trillion yen (S$895 billion) in the next three years.

As for much-needed tax and other reforms, Mr Abe is presumed to be keeping painful measures under wraps until after the July Upper House polls.

In foreign policy, two major problems have so far eluded him.

Dialogue with South Korea has been suspended since last August when then South Korean president Lee Myung Bak paid a sudden visit to the disputed Takeshima (Dokdo to the Koreans) Island.

Ties with China cooled after Japan nationalised the disputed Senkaku (Diaoyu to the Chinese) islands last September.

Mr Abe's nationalistic streak is not helping things. Asian victims of Japan's wartime aggression are alarmed by his contention that aggression has not been universally defined.

These issues must, however, take a back seat to the Upper House polls, an important electoral and psychological hurdle for Mr Abe. Judging from the LDP's victory in the recent Tokyo assembly elections, it is likely to win the Upper House polls easily, ending the present divided Parliament.

Following the Upper House polls, and barring an early general election, there are no nationwide elections on the cards until 2016, raising expectations that his administration will be longer-lived than those of the past six years.

Economics is likely to remain his highest priority for some time to come.

He has promised to flesh out some of his Abenomics targets after the July elections, and also hinted at acceding to corporate and other tax cut demands by Japanese companies to make them more competitive globally.

But how far will Mr Abe be able to go? The LDP does not have a good reform track record. Plus, two hikes in the sales tax due next year and in 2015, bringing it to 10 per cent, will inevitably discourage personal consumption.

Meanwhile, Mr Abe is out to strengthen ties with as many regional friends as he can.

Later this month, he is said to be planning to visit Asean countries such as Malaysia, the Philippines and Singapore, skipping Laos and Cambodia, which are Chinese allies. He visited Vietnam, Thailand and Indonesia in January and Myanmar in May.

He is also seeking to catch up with China in Africa,
promising 3.2 trillion yen in aid and private investment funds for countries in the emerging continent where China has a huge lead.

A lacklustre economy, political apathy and annual changes in Japan's top leadership in the past six years have combined not only to erode Japan's regional presence but also to allow China to widen the gap internationally.

Still, even if Abenomics were to produce a reinvigorated Japan, without patching up its ties with South Korea and China, there is little chance of Japan becoming a major regional actor again.

Mr Abe cannot be unaware of that.

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