Japan’s ruling Liberal Democrat Party (LDP) won an impressive electoral victory on July 22nd, earning a decisive majority in the upper house of the Japanese Diet. Of the 121 seats up for election, the LDP secured 65, while its coalition partner, New Komeito, added 11 more. Together, the coalition now controls 135 spots in the 242-seat chamber. This marks a decisive affirmation of the policies enacted by the LDP Prime Minister, Shinzo Abe, who has lifted hopes of a Japanese recovery on his economic platform of “Abenomics.”
In addition, with a majority in the upper house, the LDP now has unified control of the Japanese government with an existing two-thirds majority in the lower house. If the coalition holds, Japan will not have to hold elections for up to three years — a marked measure of consistency in a country that has seen six administrations in as many years.
The LDP’s strong showing builds on the high public approval of Prime Minister Abe’s leadership. Since taking office, Abe has enacted a combination of fiscal stimulus, strong monetary easing, and limited structural reforms to snap Japan out of a deflationary slump. While these actions have yet to fully play out, 71 percent of the Japanese public view Abe favorably. However, even though the percentage of Japanese who are positive about the economy has improved, only 27 percent of those surveyed view the economy as doing well. This demonstrates just how deeply economic pessimism runs and gives a clear sense of the work that remains to be done.
At a Reform Crossroads
The LDP’s victory gives Abe significant momentum to further his economic agenda and more aggressively pursue the structural reforms promised in Abenomics. Since the first two parts of Abe’s plan – fiscal stimulus and monetary easing – have sparked a marked recovery in Japanese markets, hopes were high when he announced the first set of reforms last month. Disappointingly, they were mostly smaller measures that failed to address major structural issues, prompting descriptions of his proposal as an “old-fashioned industrial policy which has been tried, and has failed.”
With this election, Abe has gained enough political clout to try something more meaningful. As Japan recently joined the Trans Pacific Partnership (TPP), a useful step would be to begin deregulating the agricultural sector to make it more globally competitive. This might make the easing of sky-high tariffs more manageable as TPP negotiations progress. Japan’s labor market also needs to be addressed, and the US has been pushing heavily for a more open automotive market.
However, some fear that Abe might return to his pet project of revising the pacifist Japanese constitution. The constitution prohibits Japan from maintaining a military, although Japan has retained its right to self-defense forces. However, they are limited in their capabilities and cannot engage in collective defense. Abe sought to lead a more internationally active Japan in his first stint as Prime Minister in 2007. In this vein, he has hoped to revise Article 9 of the constitution to allow for a more robust military. Revision requires a two-thirds majority for passage, which the LDP has not secured in the Upper House. Drumming up support for such a hotly disputed issue could waste the terrific opportunity Abe has for reform.
Nationalist Dangers
The concern is that the temptation to move forward on a more nationalistic platform will prove too strong. Japan has faced an aggressive China, which has hotly disputed the sovereignty of the Senkaku/Diaoyu Islands in the East China Sea. Other provocations have raised tensions as well. Just recently, Chinese naval vessels passed through a strait to the north of Japan following drills in the Sea of Japan. Rather than sailing back towards China, the vessels are circling around Japan in what has been made out to be a show of force. Incidents like these have raised concerns about Japan’s ability to respond effectively.
The recently published annual white paper from Japan’s Ministry of Defense called for an increase in military spending (the first in 11 years), while striking a more accusatory tone in regard to China’s activities. The document notes that China has “engaged in dangerous acts that could give rise to a contingency situation” and later labels the situation as “extremely regrettable.” Chinese state media responded harshly, demonstrating just how touchy relations have become between the two countries.
With polls showing resistance to constitutional revisionism declining, Abe might decide that a strong international posture would complement Japan’s economic revival. A shift in focus along these lines would be disappointing given the opportunity to push for more lasting reform. East Asian countries, particularly South Korea and China, still harbor grievances against Japan’s actions in World War II. Any hint of militarism would only inflame those historical tensions to the detriment of trade and growth. When Japan moved to nationalize the Senkaku Islands in the fall, waves of anti-Japanese riots spread in China as people attacked Japanese businesses. At a time when trade is at the forefront of the agenda, Japan can ill afford any further cracks in its economic relationship with other Asian countries.
Following the election, Abe made remarks that strengthening the economy would continue to be his aim. Japan’s entry into the TPP talks in Malaysia should help sharpen that focus. It does seem likely that he will move forward on some agricultural issues as trade negotiations continue. Still, given the complicated politics intertwining the LDP with the agricultural sector, realizing those reforms might be difficult. Abe needs to be just as bold in pushing forward as he was in shaking up monetary policy. The economic pick-up Japan has seen lately gives him a powerful tool to show the Japanese people that reversing stagnation is possible. If he ignores his inclinations towards revisionism, Japan just might actually realize his campaign phrase: “Japan is back.”
