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Japan’s Abe Could Join Reformers’ Pantheon

By the Editors
December 18, 2012 6:30 PM EST

Since November 1982, Japan has had 18 prime ministers, with an average stay in office of 658 days. Arguably, only two left the job smiling: Yasuhiro Nakasone and Junichiro Koizumi, both strong reformers with clear agendas who were, not coincidentally, among Japan’s longest-serving chief executives.

Let’s hope that lesson isn’t lost on Shinzo Abe, Japan’s next prime minister, when he takes office Dec. 26. With his landslide victory, Abe has a political opening to push reforms that could lift Japan from the economic morass it has been stuck in for the past two decades.

He’ll still have his work cut out for him. The supermajority that voters gave his Liberal Democratic Party and its coalition partner Komeito in the parliament’s lower house rests on a weak foundation: Voter turnout was the worst of any general election in the postwar period, and the results suggest voter disappointment with the ousted Democratic Party of Japan rather than any rekindled love for the LDP.

To solidify support before elections in July for the upper house, which is controlled by the DPJ and its allies, Abe will have to quickly convince voters that he is pointing Japan in the right direction.

Here’s the plan he ran on: get tough with China over the disputed islands known as Senkaku in Japan and Diaoyu in China, and turn on Japan’s fiscal spigot to get its economy out of recession. Unfortunately, neither course of action is likely to produce the results he seeks.

A deepening confrontation with China over the islands is the last thing Japan needs. Part of the reason its economy is (again) in the doldrums is the dispute’s impact on Japan’s $340 billion trading relationship with China. Despite his hawkish talk and provisions in the LDP’s manifesto calling for Japan to station personnel on the islands and increase patrols, Abe’s work to mend relations with China during his term in office six years ago offers a better model for moving forward.

Better ties with China would spur Japan’s economy without increasing its debt. That’s something you can’t say about Abe’s promise to forge ahead with a “large” extra budget -- estimated at anywhere from 5 trillion ($60 billion) to 10 trillion yen --and push the Bank of Japan (8301) to double its inflation target to 2 percent and increase asset purchases. Japan’s levels of public debt, already the world’s highest, are projected to be 230 percent of gross domestic product in 2014.

We recognize that asking the LDP to forgo pork-barrel politics in a stagnant economy before an election goes against its most primal political instinct. That said, Abe could signal his determination to tackle Japan’s debt problem -- and perhaps forestall a cut in its credit ratings -- by committing to the sales-tax increases that are on the books for 2014 and 2015.

More fundamentally, he could advance economic reform by embracing, and firming up, his predecessor Yoshihiko Noda’s commitment to join negotiations for the Trans-Pacific Partnership, a free-trade deal encompassing 11 economies across the Asia-Pacific region.

The TPP’s high standards for membership would force Japan to revisit everything from the almost 800 percent tariffs it sets on imported rice to the anticompetitive practices of Japan Post, a $3 trillion behemoth that controls more than 30 percent of the country’s banking industry and just over 20 percent of its insurance market. Such liberalization would not only boost economic growth, but also amount to what former Prime Minister Naoto Kan referred to as “the third opening of Japan.”

Talk of Japan’s decline today is just as overheated as the warnings a few decades ago of its predatory dominance. Japan is still the world’s third biggest economy. Its people enjoy the world’s longest lifespans. And its companies, universities and research institutes churn out Nobel laureates and patents. While marquee consumer brands such as Sony Corp. and Panasonic Corp. (6752) struggle, a new breed of more disciplined companies is thriving.

Some of the challenges Japan faces are indeed formidable. And its voters, to their credit, are increasingly impatient with leaders who can’t meet them. That’s what democracy is all about. It’s now Abe’s turn.

To contact the Bloomberg View editorial board: view@bloomberg.net.

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