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Abe’s quest to revive, reshape nation rides on the economy

by Ayako Mie

Staff Writer

After a landslide win in the July Upper House election gave his Liberal Democratic Party-New Komeito bloc a comfortable majority in both Diet chambers, many people and media outlets concluded Prime Minister Shinzo Abe would have three “golden” years without any national elections or political setbacks.

But now, almost six months later, critics say 2014 might not go as smoothly for Abe as thought.

The still fragile economy and Abe’s potentially dangerous push to realize his nationalist policies could undermine his relatively stable power base if they go awry.

Abe’s surprise visit to the war-related Yasukuni Shrine in Tokyo last month has revived international concerns that he might be a dangerous nationalist who could upset the power balance in East Asia.

But it is his management of the economy, not his nationalist agenda, that will determine the fate of his administration, observers say.

“2014 will be a very complicated year, like solving a series of equations,” said Norihiko Narita, a professor at Surugadai University and a one-time aid to former Prime Minister Yoshihiko Noda of the Democratic Party of Japan.

Especially critical is the timing of the sales tax hike from 5 to 8 percent. Despite the government’s commitment to a ¥5.5 trillion stimulus package last month and Abe’s ceaseless appeals to businesses to raise wages, it is unclear if the public will see tangible economic benefits.

“If Abe pursues his agenda without making much progress on the economy, he will suffer a plunge in his approval rates,” said Narita. “It will also give the opposition camp many reasons to attack the ruling camp.”

“Abe’s economic policy will be tested whether or not companies raise base salary,” said Naomi Fink, economist and CEO of Europacifica Consulting.

Fink also warned that the government should not pressure firms to raise wages, because rising profitability will see to that on its own.

“Rather, the more effective policy in this regard is to ensure that such conditions remain in place and there is a specific order whereby Abe might ensure optimal policy effectiveness.”

Abe has enjoyed a political comeback since his disastrous first prime ministership in 2006 and 2007, when he was forced to step down due to health problems and plummeting popularity.

Abe reportedly learned a key lesson from his setback: It’s the economy that voters are mainly concerned about, not his nationalist agenda, such as revising the pacifist Constitution.

Indeed, in the first year, Abe has devoted most of his political energies to the economy, pushing his “Abenomics” policies — ultra-aggressive money easing, flexible fiscal spending and deregulation and subsidies to promote economic growth.

Abe’s visit to Yasukuni, however, may suggest he is finally losing patience and will start taking aim at some of his long-held nationalist goals, such as removing legal restraints on the Self-Defense Forces.

Shinichi Kitaoka, a key member of a government panel on security, said the panel plans to issue a report on allowing Japan to exercise the right to collective self-defense, after the 2014 budget is approved by the Diet.

Abe’s government has been laying the groundwork by launching a Japanese version of the U.S. National Security Council and enacting the contentious state secrets law, as well as compiling its National Security Strategy, which called for more operational integration with the U.S. military.

“We should do what we need to do to enhance our national security when we have a comfortable majority in both chambers,” Fukushiro Nukaga, a Lower House lawmaker from the LDP, said last month. He chaired the Special Committee on National Security at the Lower House.

But critics say Abe’s popularity still hinges on the outcome of his economic policy.

December media polls showed Abe’s approval rates dipped below 50 percent for the first time since he took office in December 2012, apparently reflecting disapproval with the ruling bloc’s forcible enactment of the state secrets law at the extraordinary Diet session.

A Kyodo News poll the same month also showed 53 percent of the respondents said they are against reinterpreting Article 9, while some 37 percent support it.

At least in public, Abe, too, has emphasized his priority is still on Abenomics, not his nationalist agenda.

“The economy still remains our priority,” Abe said last month. “Abenomics will be deemed a failure if profits earned by big corporations cannot be distributed to the small-to-midsize enterprises in the form of wage hikes.”

The effectiveness of the stimulus package unveiled last month and wage hikes will be crucial for Abe going forward.

The government is slated to decide whether to raise the sales tax to 10 percent in October 2015 based on growth in the July-September period this year. The hike is seen as vital to cutting Japan’s ballooning debt, which is more than twice GDP.

The government last month estimated 2.6 percent growth in real gross domestic product, but 41 economists surveyed by the Nikkei Shinbun said the economy will grow at a real annualized rate of 1.4 percent, as the tax hike is expected to push down consumption.

With the enactment of three laws to enhance infrastructure against natural disasters, LDP lawmakers with close contacts with the construction industry apparently gained momentum. The budget for public works projects added about ¥100 billion compared with the fiscal 2013 budget.

“We are not intending to spend money wastefully, but what is needed is necessary,” said Toshihiro Nikai, who heads the LDP’s project team for infrastructure last month.

During the rule of the Democratic Party of Japan, the government shifted money from public works projects to welfare, cutting its public works budget almost by half in 2013.

In addition to the economy, the Tokyo gubernatorial election, which is scheduled for Feb. 9, will also be a major political event for Abe’s LDP in 2014.

Tokyo Gov. Naoki Inose resigned at the end of last month amid mounting criticism of a dubious ¥50 million loan from the hospital group Tokushukai.

After losing in a number of local government elections, the LDP will have to tap a candidate who can surely grab the governor’s seat, especially because Tokyo will host the 2020 Olympics.

Critics say having an LDP Tokyo governor this time is important for the party and the government to influence the organizing process, which comes with lots of public works projects.

  • iwishitweretrue

    The problem with the Abe Yasukuni Shrine visit is that the international community will think that Abe is a loose cannon: even Angela Merkel stated that Japan should look at its history honestly as Germany has done. Also, it would indicate to Japan and its citizens that Abe has taken his eye off the economy – which is a big mistake at such a critical time.

    • CS

      I don’t think Abe is seen as a loose cannon at all – he’s merely a politician. Japan Inc. still runs the show, whoever the figurehead du jour is makes little difference. Abe’s schtick is behave more assertively, since this is what the ‘powers that be’ want, including the US (as part of their policy to contain China). Of course politicians will always SAY otherwise to keep up appearances, but their words mean little if anything. Actions speak louder than.

  • http://www.sheldonthinks.com/ Andrew Sheldon

    I don’t believe Abe is a nationalist; I just think he doesn’t want to be the leader who doesn’t pander to their interests. If all that takes is a visit to the Shrine; such a token gesture, then I think we need to consider the more substantive foundations for nationalism. Does it bode badly for Koreans & other foreigners in Japan? Well, I guess you could argue fingerprinting at the airports is a step backwards. Its not a particular clear trend.