Challenges for Abe’s new term

Shinzo Abe was reelected prime minister by the Diet on Wednesday after the ruling bloc of his Liberal Democratic Party and Komeito was returned to a two-thirds majority of the Lower House in last week’s general election. His gambit to solidify his power base by holding the snap election while the divided opposition was unprepared paid off. The question now is how Abe tackles pending challenges, including the slowing economy and legislation to implement his Cabinet’s controversial decision to enable Japan to engage in collective self-defense.

Abe has claimed that the outcome was a vote of confidence in his administration. But it would be presumptuous for the prime minister and the LDP to assume that his policies have won a resounding public endorsement, given that the party won less than half the popular votes cast in an election that saw a historically low turnout as nearly half the electorate abstained from voting. Abe also called the election a public referendum on his “Abenomics” policies, and the LDP’s big wins mean his administration will likely stay the course on the economic front. But his success at the polls in itself will not fix the problems that confront the economy, which posted two consecutive quarters of decline in gross domestic product.

Over the past year, quarterly GDP growth took place only in the January-March period, when people rushed to buy ahead of the consumption tax hike in April. Consumer spending, which accounts for 60 percent of the nation’s GDP, has continued to decline sharply since April as people’s net income fell for 16 consecutive months as price increases outpaced wage hikes. The yen’s steep fall against the dollar, backed by the Bank of Japan’s large-scale monetary stimulus, has pushed up the earnings of major firms to record highs and led share prices to surge 70 percent in the first two years of the Abe administration. But the weak yen is no longer a cure-all for the Japanese economy and has hurt both consumers and many businesses by pushing up import costs.

Abe fought the election by daring the opposition camp, which dubbed Abenomics a failure, to present alternative schemes to revive the economy. But that fact that voters did not place their trust in the opposition’s policies doesn’t mean that Abe’s policies are the optimum solution for the economy. He needs to assess current economic conditions and be ready to change course in areas where his policies are not working.

A virtuous cycle, which Abe claims is finally starting to emerge, has yet to benefit a broad segment of the economy. The latest Tankan survey by the BOJ, released a day after the election, showed mixed business sentiments and indicated that companies across sectors see greater uncertainties in the months ahead, apparently mindful of the impact of the yen’s recent downfall on consumer spending. A recent Teikoku Databank survey shows that the number of companies predicting an economic downturn in 2015 is double those that forecast a recovery. Abe has once again urged businesses to raise wages next year, but compliance remains uncertain given the mixed picture of the economy.

The prime minister said the LDP’s election victory is also a vote of confidence in his Cabinet’s decision in July to reinterpret the Constitution to lift the ban on the nation engaging in collective self-defense — even though the issue was largely sidelined during the campaign. Still, a Kyodo News survey after the election shows that a majority of people continue to oppose the major change in the nation’s defense posture. The bills to implement the change need to be endorsed by the Diet. Popular support for Abe’s controversial move is not a given. He should prepare for thorough Diet discussions.