Tokyo’s victory for the right to host the 2020 Olympic Games is a reassurance to Prime Minister Shinzo Abe’s recent go-to catchphrase, “Japan is Back,” with the slogan having appeared as the subtitle of the government’s growth strategy and even as the title in one of Abe’s policy speeches.
The message is clear: Abe believes that the nation is emerging from its decades-long deflation thanks to his economic policies and is on the path to regaining its status as a leading global economy. Abe, other political leaders and business leaders were quick to express their hope that the hosting of the Olympics, the world’s largest international sporting event, will bring a boost to Japan’s economy.
From Sept. 11 through 13 in Dalian, China, Japanese delegates to the World Economic Forum’s Annual Meeting of the New Champions, dubbed Summer Davos, will espouse Abe’s message to policymakers from global businesses, governments, media, academia and other sectors. Chinese Premier Li Keqiang will be making his first appearance at the annual event held in China.
According to the WEF’s website, “This year, the working theme is ‘Meeting the Innovation Imperative.’ The meeting will feature an intensive and interactive three-day program to explore and address the innovation imperative under the following thematic sub-themes: Unleashing Innovation, Transforming Industry Ecosystems, Connecting Markets, Building Societal Resilience.”
“The Annual Meeting of the New Champions brings together innovators who are creating the future of business and society. It will highlight how the heads of top-ranked multinationals and tomorrow’s industry champions, together with government, media, academia and civil society, can drive competitiveness and economic recovery, ” said Olivier Schwab, executive director of the WEF China.
“Japan’s GDP statistics symbolize the essence that ‘Japan is Back,’ ” economic revitalization minister Akira Amari said at a news conference in June. Whereas the domestic economy was shrinking in the latter half of 2012, Abe and his team succeeded in turning the game around quickly and raising the gross domestic product growth rate to an annualized 2.6 percent in the three months to June, and 3.8 percent in the first quarter of 2013.
The prime minister so far appears to have succeeded in inducing an economic uptrend since taking office in December.
Since the administration came into power, the government revealed it will spend ¥200 trillion over the next 10 years on public works and measures to improve disaster preparedness. The spending cap on the annual budget that was put in place by the previous Democratic Party of Japan-led government has been scrapped, and Abe’s team has pledged to go on a spending spree through its ultra-loose fiscal policy.
The Bank of Japan, which has agreed to set an unprecedented inflation target of 2 percent, also joined hands with Abe.
The BOJ pushed forward a hefty monetary easing policy that caused the yen to drop quickly against other currencies. That worked in favor of Japan’s sluggish exporters, which quickly turned substantial profits, while the cycle also led the Nikkei to soar and spending by households to grow. The consumer price index has moved upward, albeit slightly, but this has been taken as an indication that tides are changing for the deflating economy.
Japan’s economy appeared to be in cruise control for Abe until the breakneck recovery waned somewhat and extreme volatility started to kick in in late May. Doubters were quick to raise their voices once the momentum appeared to fade.
“Japan’s miracle cure may not be working,” said a report in The Wall Street Journal in July, pointing out that the boost to the Nikkei 225 index had weakened in the last few months and that wages weren’t rising in Japan.
Germany’s central bank last month also said that Abe’s policies, dubbed “Abenomics,” will only be effective for a short-lived span.
In a recent report, the International Monetary Fund also stressed that “significant risks remain both from international and domestic factors,” highlighting Japan’s bloated government debt and slow structural reform plans.
Truly, Abe’s second stint as prime minister and his initial steps to revive the economy have begun losing their initial thrust. Pundits agree that Abe must walk the walk and execute his growth strategies as such concerns rise.
When the Cabinet approved Abe’s growth strategies in June, Keisuke Naito, a senior economist at Mizuho Research Institute, said in an interview with The Japan Times that the government must “deliver on its promises” regarding the growth policies or Abenomics “will end merely as a mini-bubble.”
The set of growth plans, following the drastic monetary policies and fiscal spending, are what Abe refers to as the “three arrows” of Abenomics.
Its contents include deregulation measures, such as permitting sales of nonprescription drugs on the Internet, creating special economic zones to promote new business and boosting investment on developing climate-friendly energy resources over the next 10 years.
That, and other sets of growth strategies, should raise the per capita gross national income by ¥1.5 million within the next decade, according to the government.
The growth strategies are “designed to stimulate the private sector’s creativity in doing business and to start global innovation in Japan,” Abe said when revealing the contents of the growth policies in early summer.
“Deregulation is the first and foremost core of the growth strategies,” he added.
The prime minister explained that the creation of special economic zones, where, for instance, regulations on floor-area rationing will be eased and allow high-rise residential buildings, should be able to create international business environments on par with New York and other major economic centers.
Combined with deregulation on creating international schools and allowing doctors from overseas to practice medicine in the country, the scheme should attract companies to build their business in Japan, Abe added.
The government has also promised to assist the private sector in the medical and infrastructure-building industries to boost innovation in these fields. The retail electricity market will be liberalized as well under Abe’s plans.
One key aspect being watched closely is whether Abe can push forward corporate tax cuts in the next few months as one of his growth strategies. Pundits say it will determine whether the prime minister is willing to go the distance regarding structural reform of the Japanese economy.
On the domestic front, the government has pledged to tap more female workers as the nation’s working population declines. The growth strategy vows to increase the number of daycare centers to accommodate 200,000 more children by 2015 and another 200,000 by 2017.
The administration has also begun its effort to put money in consumers’ hands. Later this month, business owners and union leaders are scheduled to gather in a special meeting with the government to discuss measures to raise wages, or more specifically, how to add ¥1.5 million per capita gross national income within the next 10 years as Abe has pledged.
The grandiose pitches by Abe, however, have so far been greeted with a lukewarm reception. Many pundits point out that there was no mention of the way to achieve the ambitious goals, and that the prime minister has little time left to convince the public that his plans are feasible.
“Abenomics succeeded in working on the public’s expectations, but the effect is wearing off,” Mizuho’s Naito said, adding that the key for Abe now will be nailing down the tax incentives to boost domestic business and specifying areas for deregulation.
BOJ Gov. Haruhiko Kuroda has also warned that, while it is “extremely important to come up with a fine strategy,” execution will be the key.
Hinting that monetary policies alone can’t sustain the upward trend of the economy, the central bank chief in June urged the Abe administration “to take action and carry out the policies in a timely manner.”
In response to such voices, Abe has tagged the next Diet session, scheduled to kick off in October, as “an assembly to materialize the growth strategies.” He has expressed his will to work on the details and pass legislation regarding the growth policies, and to lay out the details of how he intends to achieve what he has promised.
Abe has even revealed that a second set of growth strategies will be presented within the year.
But whether he can deliver on his words remains in doubt, since the government already has a full plate on its economic agenda.
One is the ongoing debate on raising the consumption tax over the next two years. While a heavier taxation is indispensable for the government to right its fiscal balance sheet, some have claimed that a tax hike will kill off the drive created by Abenomics as the country finally sees signs of an end to deflation.
In addition to balancing the tax debate and growth strategy, pondering ways to achieve fiscal reform is also a pressing matter since the Cabinet has followed previous administrations in vowing to halve the primary balance deficit by 2015 and achieve a surplus by 2020. The initial request for the fiscal 2014 budget, however, has surpassed ¥100 trillion for the second straight year.
A key portion of Abenomics has been the massive public works spending, which led the economy to grow quickly in the last few quarters. But how that cost will be justified against the effort to cut government debt has yet to be seen.
Handling the downside of Abenomics is also an urgent matter, as the yen’s rapid easing has increased the cost of imports, causing headaches for some as prices for basic necessities such as tissue paper and vegetable oil have gone up. Japan’s reliance on energy imports is pushing the country’s trade deficit to historic highs as well.
Sitting atop such issues is the still on-going nuclear crisis in Fukushima. Abe has said that restarting the nuclear power plants and exporting nuclear technology abroad will be a key ingredient to boost the economy. But with the continued leaking of radioactive water at the Fukushima No. 1 plant, Abe has a long way to go to convince the public that reactivation is the right choice.
The prime minister has plenty on his hands, but now is the time for Abe to prove that the economic revival is not a fluke.
“The extraordinary Diet session will be an occasion to push forward strategies on Japan’s revival,” Abe said earlier this month. “We must do all we can to strengthen the details of Abenomics.”