On Sunday Japanese voters gave Shinzo Abe and the LDP a landslide win.
Can he revive Japan's growth prospects?
Shinzo Abe campaigned on taking
Japan back to the future. Have the nation’s voters got what they wished for
with the Liberal Democratic Party’s (LDP) stunning election victory on Sunday,
delivering the 58-year-old his second stint as leader?
For the defeated Yoshihiko Noda
of the Democratic Party of Japan (DPJ), the poll was a devastating electoral
backlash against, among other things, his push to increase the consumption tax.
Noda’s defeat is therefore reminiscent of the one that befell conservative
Ryutaro Hashimoto in 1997.
In a landslide for the party which
was ousted from power in 2009, the LDP and its likely coalition partner, New
Komeito, are expected to win a combined 325 of the lower house’s 480 seats,
providing the two-thirds “supermajority” needed to force legislation through
both houses of the Diet.
For the DPJ, the election is
likely to reduce the Party’s parliamentary seats to just 53, down from its
previous 230 seats. Noda has resigned to take responsibility for the electoral
pummeling. Meanwhile, a third force, the rightist Japan Restoration Party led
by nationalist former Tokyo governor Shintaro Ishihara, secured 54 seats, only
three less than the center-left DPJ.
Noda was forced to call an
election as part of a deal with the opposition to get through a consumption tax
hike, which will rise to 8 percent in April 2012 and 10 percent in October
2015.
The DPJ’s electoral prospects
were also damaged by party infighting, its handling of the March 2011
disasters, foreign policy rows with Japan’s neighbors and an intransigent
opposition-controlled upper house.
Abe will be installed next week
as Japan’s seventh prime minister in six years, and the first LDP leader since
its decades-long rule ended in 2009. He has vowed more government spending and
monetary expansion to drag the economy out of its deflationary downturn.
Speaking after his election
victory, Abe indicated that the economy would be his first priority in office.
"First and foremost we have
to bring about an economic recovery and pull Japan out of deflation," he
said.
"We must strengthen our
alliance with the U.S. and also improve relations with China, with a strong
determination that there is no change in the fact that the Senkaku islands are
our territory," he added.
Abe also told local media on
Monday he was reviving the Council on Economic and Fiscal Policy to facilitate
communication with Bank of Japan (BOJ). It is widely believed he will seek to
pressure BOJ into pursuing a more aggressive economic easing and allowing the
inflation rate to double to 2 percent. In addition, the new leader said he was
considering a “large-scale” extra budget for fiscal 2012, with a nominal
economic growth target of 3 percent a year.
Koizumi Mark II?
Economist Jesper Koll, Japan
Director of Research at JP Morgan, said Abe had the opportunity to “seize the
moment” in his second stint in office. Abe’s previous term lasted less than a
year, stepping down for health reasons in 2007 amid poor poll ratings after
having succeeded free market reformer Junichiro Koizumi.
While there are clear differences
in style and policy between Abe and the man he previously replaced, Koll said
it could be second time lucky for the blue-blooded leader.
“Like no one since Koizumi, he’s
clear cut, straightforward, and outspoken in formulating his policy goals and
how to achieve them. First and foremost, the stated goal is to launch an
all-out attack on deflation. Here, the [Bank of Japan] gets a mandate to
deliver on a 2 percent inflation target, and to get there commit to indefinite
base-money growth until that target is achieved,” he told The Diplomat.
“But it’s not just money policy.
Abe also takes a clue from legendary LDP strongman Kakuei Tanaka – he wants to
rebuild the Japanese archipelago and proposes a public works program worth 200
trillion yen [approximately US$2.4 trillion] over 10 years to rebuild public
roads, reinforce against earthquakes and tsunami all public schools, hospitals
and other buildings.
Credit rating agencies who warned
Japan over its rising government debt — estimated to reach 245 percent of GDP
in 2013 – are likely to be concerned by
Abe’s economic policy agenda. Already, Standard & Poor’s has stated it may
lower its rating on Japan should it not carry out fiscal reforms, with Abe
having previously indicated that the consumption tax hike was subject to
economic conditions in 2013.
However, Koll said attack was the
best form of defense when it came to tackling deflation.
“The key point here is that Abe
actually wants to link the central bank and fiscal policy back together —
Ministry of Finance [MOF] authorizes public works and infrastructure projects
to create demand for credit and goods and services, while the central bank
provides the immediate funding by buying the IOUs issued to get these projects
off the ground,” he said, noting the similarity to the BOJ’s funding of Japan’s
industrial growth of the 1930s.
“As an added bonus, Abe has just
the man needed for the job – ex-MOF vice minister Eijiro Katsu is his stated
choice to replace [BOJ Governor] Shirakawa when his term expires next April.
“Katsu is the mastermind of the
recent tax-hike bills and disaster reconstruction spending. He is, in my
personal view, fully committed to generating first-and-foremost a sharp pick-up
in nominal GDP growth, as this is the absolute necessary condition to start
long-term fiscal consolidation.”
‘Hot economics, cold politics’
Japan analyst Dr. Donna Weeks of
the University of the Sunshine Coast said Abe’s return would mark the return of
“hot economics, cold politics” for the nation and its key neighbors, China and
South Korea.
“While there’s been friction
between Japan and its neighbors politically, there’s a strong set of economic
ties between the three countries [of Japan, China and South Korea],” she told
The Diplomat.
“Abe has made it pretty clear that
the economy is a priority over everything, so I suspect they’re going to try
and do whatever they can to keep that trade continuing.”
However with Japan and China
locked in a standoff over the Senkaku/Diayou Islands, Weeks said Abe could be
forced to take a more nationalistic line due to the influence of hardliner
former Tokyo Governor Ishihara in the Diet.
“Abe’s really going to have to
keep Ishihara and his party reined in, because Ishihara has a strong support
base and we could have this situation where Ishihara could try and manipulate
and make things difficult, similar to Ichiro Ozawa in the DPJ,” she said.
Financial markets have already
delivered their verdict on the change of power, with the yen weakening to a
20-month low against the dollar but the Nikkei Stock Average rising in the
so-called “Abe trade.”
Can Abe overcome the obstacles
and show the world’s third-biggest economy is capable of reviving itself? For
many, it could be the last opportunity for Japan to kick-start growth before
financial market realities bite.
Anthony Fensom
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Health care and Life Science with expertise in ASEAN 's area. We are currently changing the platform of www.yourvietnamexpert.com, if any request, please, contact directly Dr Christian SIODMAK, business strategist, owner and CEO of SBC at christian.siodmak@gmail.com. Many thanks.
No comments:
Post a Comment