There is an irrational exuberance about Prime Minister Shinzo Abe evident in his 70 percent public-approval rating, a soaring Nikkei stock average and the Japanese media cheerleading the same man it hounded out of office in September 2007.
The polite, face-saving fiction that Abe stepped down because of ill health after nearly 12 months in the top job ignores just how unpopular he was.
Actually, party elders ousted Abe — then widely known by the sobriquet “KY” (kūki yomenai; “clueless”) — because he had become a political liability. His emphasis on constitutional reform, patriotic education and rewriting history alienated voters looking for economic improvement. As a result, he was blamed for his Liberal Democratic Party losing control of the Upper House of the Diet in that July’s election.
The transformation of Abe from national punching bag to popular leader has been amazing. How is it that the discredited obbo-chan (spoiled elite child) of 2007 can have morphed into a bold and decisive politician in 2013?
Abe went to Washington and told President Barack Obama that he is back and so is Japan, a snappy sound bite reminiscent of his predecessor Junichiro Koizumi. Indeed, the reinvention of Abe owes much to so-called Team Iijima and its slick PR operation. Isao Iijima, often compared with Karl Rove — longtime senior adviser to George W. Bush — was the man behind the scenes who, by deftly coopting the media, stage-managed Koizumi’s riveting theater of politics as he led the country from 2001-06.
The new Abe’s savvy media strategy relies on a steady flow of policy pronouncements, public appearances, dynamic gestures, a dash of overseas visits and even Twitter and Facebook. It’s all about staying “on message” and having a well-thought-out strategy for when and how to engage the issues and what to say. Old Abe often looked like a deer caught in the headlights plodding and unprepared for debate; but the handlers have now rolled out a much more polished and scripted version.
Taking advantage of the honeymoon, Abe has hit the ground running, presenting a compelling made-for-media image, giving targeted interviews and controlling the news flow. No more of those off-the-cuff daily interviews with the press that led to many Abe-gaffes in the past.
He even looks on course to stop the revolving door at the top, but voters are volatile for the very good reason that politicians have not delivered on bread-and-butter issues. Abe openly acknowledges that he learned some important lessons from his failure, along the lines of, “It’s the economy, stupid!”
Once his LDP bags the Upper House in an election expected in July, Abe figures to land the big fish of constitutional reform and remove constraints on the military. In doing so he is taking care of the unfinished business of his grandfather, Nobusuke Kishi, once jailed as a suspected Class A war criminal who went on to be prime minister from 1957-60. But can Abe deliver on the economy?
His “Abenomics” has been an enormous success as a marketing strategy. It suddenly became a global brand, a slogan on everyone’s lips that helped Japan and Abe regain their mojo. When I met some hedge-fund managers on the eve of the LDP’s Lower House election victory in December 2012, they were Abe-boosters. These are guys who make a lot of money speculating on assets and currencies and they were maximum bullish about Abe’s push for QE (quantitative easing) on steroids.
With the Bank of Japan essentially taking the other side of their bets, the hedge-fund crowd knows that the house is rigged for profits. Japanese stocks suddenly look enticing not because the fundamentals of the companies got better, or due to leaps in productivity, but because more money sloshing around makes it likelier that stocks and real estate will soar (don’t mention the words “asset bubble”) while the yen depreciates.
This is exactly what former Bank of Japan Gov. Masaaki Shirakawa was saying the day he stepped aside: What is good for market participants is not necessarily good for the economy. It was his oblique way of pointing out that Abenomics is a boon to financiers, but not a cure for what ails the economy. He also inconveniently reminded everyone that structural reforms are key to sustainable growth — and this is the missing arrow in Abe’s quiver.
Abenomics is about unconditional monetary easing, fiscal pump-priming and maybe a growth strategy. The rationale is that QE will boost inflation to an annual rate of 2 percent — and that this will have a beneficial impact on the economy, stoking growth and expansion in jobs. Much of the financial press has caught the herd mentality, trotting out all sorts of reasons why QE will succeed.
New BOJ Gov. Haruhiko Kuroda has to meet market expectations, already priced into the Nikkei index and the yen, by delivering the “wow” factor so bettors won’t take their winnings off the table. This means he has to balance the danger of putting riskier assets onto the BOJ balance sheet against that of disappointing the market. The politics of QE make it clear that the BOJ will be bold. But the Cyprus speed bump is a reminder of just how jumpy markets are and the risk of external shocks.
One of the most bizarre examples of Abe-phoria is a recent suggestion that inflation-targeting is beneficial to young Japanese because it will hit elderly savers harder. Not exactly a compelling logic, because embracing the wonders of inflation overlooks the fact that young people are being pushed into nonregular jobs with low pay and no security. This precariat now constitutes 35 percent of the workforce, and putting more money into their pockets is key to overcoming deflation. Alas, few own stocks and firms aren’t offering them full-time jobs … so they are left singing the Abe blues.
Recently, Finance Minister Taro Aso rained on the parade when he warned that achieving 2 percent inflation will be difficult, and that changing consumer sentiments will take a while.
Richard Koo, Nomura’s chief economist, also believes that QE as panacea has been oversold. Richard Katz, a leading Abe-skeptic and editor of the Oriental Economist, further argues that Abenomics features “more sizzle than steak,” predicting its benefits will be temporary and illusory and won’t revive the economy’s long-term vitality.
One of the problems in the battles over economic policy is that there are those who think of them as tools to be used as appropriate depending on the circumstances — and those who are true believers. In this day and age, almost everyone is a monetarist to some degree, but some see it is a magic wand.
However, Abenomics in the view of purists is tainted by its heavy dose of Keynesian pump-priming. This latter is from the longstanding LDP playbook of borrowing and spending, one of the reasons why Japan’s public-debt-to-GDP ratio currently exceeds 230 percent. Much of this money will be funneled into public-works projects, and that is what Abe hopes will deliver the feel-good factor in time for the upcoming election. Meanwhile, Casino Abe is open for business.