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The high price of Japan’s economic gaffes

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Barron's Asia

Journalists love politicians who put a foot, or two, in their mouths. But these days, Japan offers an embarrassment of riches as Tokyo powerbrokers one-up each other in the gaffe department.

Exhibit A: Kazuya Maruyama, a lawmaker from the ruling Liberal Democratic Party, who made a statement that some took as referring to Barack Obama as a descendant of black slaves.

Or Prime Minister Shinzo Abe’s communications minister, Sanae Takaichi, declaring, China-style, that the government might close broadcasters who don’t toe its line.

Abe’s environment minister, Tamayo Marukawa, dismissed the nervous nellies in Fukushima worried about radiation.

It was bizarre, too, that when Abe’s economy minister resigned amid a graft scandal, Akira Amari played up his “aesthetic sense of honor as a politician.” Huh?

And then there’s LDP lawmaker Kensuke Miyazaki, who’s married to another Abe party mate. Miyazaki recently hit the media circuit positioning himself as the posterboy of paternity leave (still largely taboo in Japan). Days later, the super-dad routine hit a wall as the media detailed his affair with a bikini model.

Entertaining as this gaffe-fest is, the most important bloopers are coming from Finance Minister Taro Aso. For muckrakers, former Prime Minister Aso is the gift that never stops giving. His howlers include: old people should “hurry up and die” to cut welfare costs; Japan aspires to be a place where “the richest Jews would want to live”; Tokyo should be “learning from the Nazis” to revise the Constitution; thanks to Japan’s colonization, Taiwan “keeps up with the current era”; we avoided the worst of the subprime-loan crisis because “managers of Japanese banks hardly understood English — that’s why they didn’t buy.”

The list, which includes slights against Alzheimer’s patients, goes on and on.

Aso’s more recent booboos, though, are of the Michael Kinsley variety. That’s when you reveal some truth you hadn’t intended to admit. I counted at least four Kinsley gaffes just this past week. One, Tokyo is mulling a fresh fiscal stimulus package. Two, the Group of 20 must halt global volatility. Three, Abe’s team will consider Tokyo stock volatility as it raises sales taxes next year. Four, peers should debate the Federal Reserve’s communications strategy as it lifts rates.

The pedantic among us might add Aso’s reassurance that Japan’s financial sector is “relatively healthy and stable.” Relative to what? China? Europe? Yes, Aso’s communications team might want to school him in the perils of fear-inducing qualifiers. But the four above comments lead to one disturbing truth: that 1,157 days into Abenomics, Tokyo is still relying on Band-Aids over big reforms, still looking to others to do the heavy lifting, still favoring Herbert Hoover-like tax hikes, and still blaming others (China and the Fed) for prolonging its perma-recession.

How Aso keeps his job, frankly, is a marvel all its own. In the dynastic and factional shark tank that is Tokyo politics, Abe clearly sees value in retaining Aso. Abe’s finance chief is the great-great grandson of a famed samurai and the scion of the Aso Cement Company, while his mother was a prime minister’s daughter. What Aso exudes in pedigree, he lacks in leadership skills. That’s partly why Abenomics has been fobbed off on Bank of Japan Gov. Haruhiko Kuroda, who’s had his own share of Kinsley gaffes of late.

Kuroda’s Jan. 29 embrace of negative interest rates sure backfired. So is his credibility as he repeats, ad nauseam, that the BOJ has the tools to end deflation and then demurs on using them. Yet Kuroda is effectively admitting the truth he’s trying to hide from bond traders and households: that the BOJ lacks those inflation-generating levers.

“It’s all been very half-hearted from an implementation standpoint,” Adrian Cooper, chief executive officer of Oxford Economics, said in Tokyo when I asked for his Abenomics assessment. The structural-change revolution Abe promised when taking office in December 2012 hasn’t arrived. An equally big problem, Cooper said, was an April 2014 move to hike sales taxes from 5 percent to 8 percent in a deflationary economy.

That policy gaffe was being repeated verbally this past week as both Abe and Aso insist they’ll raise the tax again next year. Notes Cooper: “That’s not what I’d call a good idea.” Talk about counterproductive. The April 2014 hike was aimed at paying down runaway public debt, which, by the way, continues to rise apace. It’s still increasing, in part, because Tokyo needs to borrow more to offset the effects of a tax increase meant to trim debt. If artist M.C. Escher were an economist, Abenomics would be recruiting him.

It’s progress that Sharp’s board accepted Foxconn Technology’s bid (about $6.2 billion) rather than go with a government-backed fund. The deal was widely considered a litmus test for whether Japan Inc. is opening up to overseas investment. Let’s hope it’s the first of many cross-border forays into Japan.

But gross domestic product contracted an annualized 1.4 percent in fourth quarter amid weak consumption, plunging exports, cascading industrial production and negative wage growth. Tokyo’s action plan: same-old, same-old fiscal jolts, more pressure on the BOJ to act and calls for the Group of 20 to do its job. What about Tokyo’s responsibility to boost demand and competitiveness and rein in its own imbalances? As Aso’s words suggest, Tokyo feels little, if any.

The same could be said of public officials suffering from foot-in-mouth disease. While Chief Cabinet Secretary Yoshihide Suga says all politicians should take responsibility for their statements, only fallen paternity-leave star Miyazaki has resigned. And Aso, like some Japanese Donald Trump, seems to get away with anything that pours out of his mouth. Yet Aso’s latest slips point to more than the insularity and unaccountability that plagues Tokyo politics. They show that after three-plus years of Abenomics promising everything and delivering little, no major course correction is afoot.

William Pesek, executive editor of Barron’s Asia, is based in Tokyo and writes on Asian economics, markets and politics. www.barronsasia.com

  • solodoctor

    To say that Abenomics has been implemented in a ‘half hearted way’ or that raising taxes at this time when the economy is still floundering is ‘not a good idea’ are polite understatements, to say the least. Abenomics has been a dismal failure because, at best, Abe has been more interested in things like reinterpreting the Constitution, passing security legislation, and rewriting history. At worst, he simply does not grasp basic economic theory. In Aso he has an advisor who also doesn’t know what he is talking about. Pedigree takes precedence over competence in the inner circle of the Abe administration. Heaven help the Japanese people as long as Abe and his cohorts are in power.

  • solodoctor

    To say that Abenomics has been implemented in a ‘half hearted way’ or that raising taxes at this time when the economy is still floundering is ‘not a good idea’ are polite understatements, to say the least. Abenomics has been a dismal failure because, at best, Abe has been more interested in things like reinterpreting the Constitution, passing security legislation, and rewriting history. At worst, he simply does not grasp basic economic theory. In Aso he has an advisor who also doesn’t know what he is talking about. Pedigree takes precedence over competence in the inner circle of the Abe administration. Heaven help the Japanese people as long as Abe and his cohorts are in power.

  • solodoctor

    To say that Abenomics has been implemented in a ‘half hearted way’ or that raising taxes at this time when the economy is still floundering is ‘not a good idea’ are polite understatements, to say the least. Abenomics has been a dismal failure because, at best, Abe has been more interested in things like reinterpreting the Constitution, passing security legislation, and rewriting history. At worst, he simply does not grasp basic economic theory. In Aso he has an advisor who also doesn’t know what he is talking about. Pedigree takes precedence over competence in the inner circle of the Abe administration. Heaven help the Japanese people as long as Abe and his cohorts are in power.