Abe's Second Chance
Smile and look abroad.
Prime Minister Shinzo Abe asked Japanese voters for a renewed mandate to pursue his economic-revival program, and on Sunday they gave it to him. To breathe new life into his reforms at home, he should now look abroad.
As the election made clear, there’s little debate about the thrust of Abe's current reform plan. Even Japan’s weak opposition parties more or less acknowledge the good that the first two “arrows” in Abe’s program -- massive monetary easing and fiscal stimulus -- have done. The Bank of Japan’s bond-buying has driven down the yen 30 percent against the dollar and filled the coffers of companies with global earnings. The unemployment rate is remarkably low; the stock market is rising. Nor is there much quibbling about the direction of Abe’s third arrow -- structural changes aimed at improving Japan’s competitiveness.
The problem is that those latter reforms don’t go far enough, and the Bank of Japan and the government are running out of room to maneuver. While central bank governor Haruhiko Kuroda has implied that he will do whatever is necessary to reach his 2 percent inflation target, he faces stiff opposition from his own board. Abe’s government is expected to unveil a $25 billion stimulus package early next year. But given Japan’s gargantuan debt, he will eventually face pressure to implement the sales-tax hike he recently postponed. An earlier tax bump this spring sent the economy into its current tailspin.
Tweaks -- taxing corporations that sit on their cash rather than investing it or raising wages, for instance -- might help around the margins. But the real problem is that for all his energy and verve, Abe has not fundamentally altered the status quo in Tokyo.
Japan's entrenched bureaucracy waters down reforms almost instinctively. That means small changes are all but certain to be whittled to nothing. Abe’s first two arrows succeeded in part because of their size and shock value: They were designed to change expectations radically, and for a time they did. Abe needs another big bang -- something much more than a $25 billion stimulus package.
The most obvious place to start would be with the Trans-Pacific Partnership trade deal, which would crack open some of Japan’s most inefficient sectors. Abe barely mentioned the pact during the campaign, for fear of alienating the powerful farm lobby. Now he need not be so timid. While the U.S. Congress may still derail any deal, Abe could at least pressure Washington by making key concessions on agricultural and auto tariffs.
Abe has also walked too gingerly around the issue of immigration reform. The economy desperately needs new blood -- from nurses to care for the elderly, to construction workers, to high-skilled entrepreneurs who can teach Japan Inc. how to innovate again.
There is a chance that Abe could mistake his mandate as license to push ahead with more controversial elements of his agenda, including revising Japan’s postwar constitution. He would strengthen Japan far more if he instead worked toward his own Nixon-to-China rapprochement with Beijing next year, the 70th anniversary of the end of World War II. While tensions with the mainland are inevitable, the current chill in relations risks more harm to Japan than to China: By some estimates, China might need to import as much as $4 trillion to $6 trillion in services over the next decade -- a huge potential opportunity for Japanese businesses.
Some of the strongest resistance to all of these moves will continue to come from within Abe’s own party. But voters returned the Liberal Democratic Party to power because they saw little alternative and want to believe Abe can bring Japan's economy back. His party needs to let him try.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.