A watershed year for Japan

Japan is at a crossroads in many ways as the nation greets the 70th year since it set out on the path of rebuilding after its defeat in World War II. For better or worse, the past two years of Prime Minister Shinzo Abe’s administration, which finally put an end to the revolving-door political leadership, have shed light on the nation’s long-term challenges for which we don’t have easy answers.

While Abe’s fight against deflation that gripped Japan since the 1990s has so far produced mixed results, government leaders grope their way to cope with the nation’s demographic woes that paint a bleak picture of its future.

The prime minister, meanwhile, advocates a departure from Japan’s “postwar regime” and is ready to push an agenda that sharply divides public opinion, including changes to the nation’s postwar defense posture and eventually amending the Constitution.

The postwar baby-boomer generation — who has gone through Japan’s rise from the ashes of the war to become one of the world’s top economic powers, the bubble boom and its crushing bust, and more than two “lost” decades — has joined the ranks of the elderly population.

This generation is now frequently cited as the time bomb for the social security system as the nation faces a rapidly aging and shrinking population.

An estimate shows Japan’s population falling from 128 million in 2010 to 87 million in 2060 if the birthrate remains at the current level — which is near the postwar low. This casts doubt about whether economic growth and social security programs are sustainable.

A think tank report has also warned that amid continuing population flight to big metropolitan areas, half the municipalities across the country face the prospect of “disappearance” due to depopulation within 30 years.

The Abe administration has set a goal of halting the population downfall at 100 million as of 2060, and pledges to revitalize the nation’s rural economies that have missed the benefits of his “Abenomics” policies. Its measures, spelled out late last month, includes calls for reversing the concentration of people, money and resources in Tokyo and reviving the regional economies and creating jobs for local youths by encouraging relocation of businesses out of metropolitan areas as well as promotion of local industries and tourism.

It remains to be seen whether these initial steps will be more effective than similar attempts in the past at regional revitalization and decelerating the population downtrend.

Meanwhile, the mixed results of Abe’s policies so far appear to reflect the nation’s changing economic landscape. The Bank of Japan’s massive monetary stimulus has pushed down the yen’s value 40 percent against the dollar over the past two years, helping major firms that operate globally earn record profits and contributing to a 70-percent surge in share prices. However, the days are gone when the weak yen was an economic boon for everybody.

While the weak currency boosted the earnings of major firms in yen terms, it has not increased the nation’s exports in quantitative volume as much, since many of the firms had already shifted production overseas in pursuit of growing markets. The yen’s weakness has in turn pushed up the costs of imports, hurting domestically operating firms — including many small- and medium-size businesses — and consumers.

The administration’s business-friendly policies assume that the benefits to major companies will trickle down to smaller businesses and households, thereby creating a virtuous cycle for growth. So far, though, consumers have been hit with a net decline in their wages for 17 months in a row as prices rose faster than their pay hikes.

Consumer spending has slumped for the eight months since the consumption tax hike last April, bringing down the economy for two consecutive quarters and prompting Abe to postpone the second phase of the planned consumption tax hike (from 8 to 10 percent) by 18 months.

For the second year in a row, the prime minister has urged businesses to raise wages for their workers. But it’s uncertain if major firms’ readiness for another round of pay raises will be broadly shared by smaller companies across the country. It also remains unclear how far the benefits will reach the so-called irregular workers, who have come to account for nearly 40 percent of Japan’s employed workforce.

On the other hand, the decision to postpone the consumption tax hike has raised more doubts about the government’s goal of eliminating primary balance deficits by 2020. It is estimated that government debt will reach ¥1,143 trillion at the end of the current fiscal year, far more than double the nation’s gross domestic product. While aggressive fiscal spending has been among Abe’s trademark policies, government debt carries the burden over to future generations.

Since returning to office in December 2012, Abe has led his Liberal Democratic Party to two consecutive landslides at the polls: in the 2013 Upper House election and in the snap Lower House election last month. His re-election as LDP chief in September appears almost certain, enabling him to stay on as prime minister through 2018, barring severe setbacks. He is willing to use his extended grip on power to carry out his agenda to put an end to what he calls Japan’s postwar regime.

Abe’s Cabinet decided last July to change the government’s long-standing interpretation of the war-renouncing Article 9 of the Constitution to lift Japan’s self-imposed ban on collective self-defense, making it possible for Japan to take military action to defend its allies under attack even when Japan itself is not under attack. A set of legislation to implement the decision is set to be tabled for the Diet this year.

Still, details of the bills are not forthcoming as differences linger within the ruling coalition over the scope of Japan’s use of force — which the prime minister repeatedly emphasizes will be tightly restricted.

The Cabinet decision said Japan should engage in collective self-defense only when the nation’s own survival is at stake. Abe has indicated that a Self-Defense Force mission to sweep mines laid in the Strait of Hormuz, for example, would qualify for the condition, because a halt to oil supply from the Middle East would have a deadly impact on people’s lives, thereby threatening Japan’s survival.

Komeito, the LDP’s coalition partner, is reportedly cautious toward such a view and wants to limit SDF missions to emergencies happening in areas close to Japan. Such discrepancies appear to illustrate the shaky nature of the Cabinet decision, which was hastily made after weeks of talks within the ruling bloc. The decision and the pending legislation — which mark a major change in Japan’s postwar defense posture — must be thoroughly debated and scrutinized in the Diet.

Further on the horizon of Abe’s agenda is amending the Constitution, most likely including but not limited to Article 9. The prime minister has said that the basic framework of the Constitution must be revised if Japan is to “regain a true independence” because it was created while the nation was under the United States-led occupation after the war.

After launching his post-election Cabinet last month, Abe said he would “like to make efforts to deepen public understanding” toward revising the Constitution.

While the LDP-Komeito alliance retained a two-thirds majority in the Lower House in the December election, it still lacks one in the Upper House. An amendment to the Constitution needs to be initiated by a two-thirds vote in both chambers of the Diet, then ratified by a national referendum.

With his new lease on power, Abe is expected to accelerate his push for constitutional revision if the LDP scores another victory in the 2016 Upper House election, possibly giving the party and like-minded forces the two-thirds majority.

People should closely monitor and brace for such moves, since they will be the ones to have the final say on the matter.

  • rossdorn

    I do not think anything sensational will happen…
    There is no reason. The road down the hill is long and slow, but the its true, the brakes are fading.

    The people of Japan have chosen that way, so let them have their way….