At the beginning of the new year, I would like to review the achievements of the administration of Prime Minister Shinzo Abe and the challenges it faces in its second year on the economic and political fronts.

Economically, Abe’s policies did produce results. One symbolic development was the rise in share prices, which jumped 60 percent from the beginning of 2013, propelling the Nikkei index over the 16,000 line at year’s end.

There’s no doubt the upturn in the stock market has improved economic sentiment, but rising share prices merely represent a shift in liquidity from bank deposits and other safe assets favored by risk-averse investors to stocks, which are just another form of financial assets. In other words, it’s just a movement between segments of assets.

It must be noted that economic growth only takes place when savings are used in real economic activities, such as consumption and investment.

To expand consumption — the biggest component of Japan’s gross domestic product — wage hikes will be crucial. So far, consumption has been supported by falling prices, which raised people’s effective income level. But prices started to pick up due to rising energy prices and the weakening of the yen, which means wages actually need to rise for people to consume more. This spring’s wage negotiations will hold the key.

Prime Minister Abe has urged Keidanren (the Japan Business Federation) to pressure its member firms to raise wages, but the response hasn’t been all that encouraging. Even if all of the companies listed on the first section of the Tokyo Stock Exchange raised wages, their combined payroll only accounts for 17 to 18 percent of the nation’s workforce.

The remaining 80 percent work for small and midsize firms where the prospects for higher wages remain grim.

How about capital investment? A state of oversupply persists worldwide due to slowing growth, even in the emerging economies, because manufacturing operations that were shifted from industrialized countries to developing ones to lower production costs can’t be simply halted or brought back, even in bad times. As long as this state of oversupply continues, lower interest rates alone will not expand capital investment.

Now that all fiscal and monetary policy measures appear to have been explored, Japan’s economic growth will depend on whether the Abe administration and his Liberal Democratic Party can achieve the “radical deregulation” they promised the voters. Opposition to reform remains strong both within the government and his ruling party.

Abe’s political challenge will be in revising the Constitution. With less than two years left in his three-year tenure as LDP chief, and his poll numbers falling, this issue could serve as the main agenda for his re-election.

From the outset, Abe set his sights not on revising war-renouncing Article 9, but on diluting Article 96, which spells out the procedures and voting thresholds for revising the Constitution. But he hasn’t yet followed up on the matter.

There are many points that need to be revised, but I would like to highlight the preface of the Constitution as an example.

One short sentence — “We have determined to preserve our security and existence, trusting in the justice and faith of the peace-loving peoples of the world” — contains at least two problems.

First, the text leaves our “security and existence” in the hands of “other peoples.” I wonder: Can we still call Japan an independent state?

Second, it is questionable whether “justice and faith” can be expected from all of these “other peoples.” Can we still rely on this phrase when it is undeniable that at least one of our neighbors has embarked on an expansionist path? These two elements alone make it clear the Constitution needs to be revised.

Teruhiko Mano is an international economic analyst.

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