Booming Japan Isn’t a Good Buy in 2014William Pesek
Jan. 3 (Bloomberg) -- Two numbers colored Shinzo Abe’s 2013 and offer hints about Japan’s prospects this year: 57 and 49.
The first is how much in percentage terms the Nikkei 225 Stock Average surged in 2013. The prime minister even dropped by the Tokyo Stock Exchange on Monday to celebrate, declaring: “Next year will go well. With this thought, I want to do my best. Next year too, Abenomics is a buy.”
The second number -- 49 -- explains why he’s probably wrong. It corresponds to Abe’s public approval rating as of Dec. 24. History shows Japanese leaders with sub-50 percent support rates often get little done and tend not to last very long. And Abe’s numbers could be even worse now. The Mainichi newspaper poll closed two days before he angered the world with a provocative visit to Yasukuni Shrine, an action most Japanese didn’t support.
Abe’s weakening public standing doesn’t bode well for his “third arrow.” The first two -- monetary and fiscal pump priming -- hit the target well enough, as evidenced by the largest Nikkei surge since 1972. But the 2013 rally was always predicated on optimism about the third phase of Abenomics, the structural reforms that have yet to materialize.
Abe’s enthusiasts have had to resort to some pretty strained analogies to keep up their faith. They predict that 2014, the year of the horse in the Chinese zodiac, will see Japan’s prime minister boldly trampling over the vested interests who stand in the way of lower trade barriers, less regulation and a greater embrace of free-market principles. Here are four reasons that’s wishful thinking.
The window is closing: The time to force through controversial changes was when excitement over the Bank of Japan’s bonanza was driving Abe’s approval ratings toward the 80s. Back then, Abe could practically do no wrong. He should have taken to the floor of Parliament in June and said: “Japan is back, and the investors of the world are excited. To sustain this high, we must act quickly and decisively. And so, each month I will unveil new steps lawmakers of the past lacked the courage to take in order to make Japan more vibrant. First, corporate tax changes. Next month, empowering women. The month after, loosening the labor market. After that, I will offer specific plans to cut trade tariffs, encourage startups, attract more foreign workers and initiate an energy policy to make us a global power in renewables. Then, my third arrow will be flying toward the ultimate prize: less deflation and greater dynamism.”
He’s looking for growth in the wrong places: Abe instead wasted his political capital trying to restart nuclear power plants against public opposition; traveling the world to win the 2020 Olympics and sell reactors for Hitachi Ltd. and other companies; pushing through a sales-tax increase that will dent consumption; passing a secrets bill that undermines press freedom; and irking two of Japan’s biggest customers -- and the country’s most important ally, the U.S. -- with his Dec. 26 shrine visit. Abenomics only works if companies benefiting from a weaker yen return the favor and boost wages. Instead, executives are waiting for Abe’s third arrow before they fatten paychecks. So far Abenomics has been a boon mostly for foreign hedge-fund managers, not average Japanese.
The nationalist fix is in: As 2014 begins, I can’t help but think of historian Thomas Frank. His 2004 book, “What’s the Matter With Kansas?” detailed how American conservatives get the middle class to vote against its interests with a bait-and-switch strategy. They trick households by harping on social issues, while enriching the 1 percent behind the scenes. Abe does that in reverse: He distracts Japanese with talk of prosperity so he can pursue a right-wing agenda. His visit to Yasukuni, which honors 14 Class A war criminals from World War II, showed he cares more about coddling nationalists than winning over Chinese and South Korean consumers. Abe’s new push to revise textbooks to whitewash Japan’s wartime exploits underscores his real focus -- to institutionalize the absurdly revisionist take on history he inherited from his grandfather, Nobusuke Kishi, who was himself jailed for war crimes before becoming prime minister. As Abe takes care of family business, his true mandate from voters -- the economy -- gets short shrift.
He’s undermining the Trans-Pacific Partnership: When optimists toast Abe for audacity, they offer up as evidence his support for the controversial U.S.-led trade deal. But Japan could undo the 12-nation pact with exceptions it’s demanding for entry, including in the critical sectors of agriculture and automobiles. Expect others soon to request the Japan treatment: Malaysia can take its affirmative-action policies off the table; Vietnam can protect state-owned enterprises; New Zealand can designate dairy a no-go zone, and so on. Optimists see the pact as a Trojan horse that once inside Japan Inc.’s walls will defeat vested interests. Thanks to Abe’s timidity, they probably have little to fear.
In the Chinese zodiac, the horse represents revitalization and improvement. Foreign investors clearly have that hope in mind, as they bet that this is Abe’s year to gallop toward epochal change. Too bad he’s squandering that goodwill by horsing around.
(William Pesek is a Bloomberg View columnist.)
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