Business / Economy

U.S. in suspense over fate of 'Abenomics'

by Kakumi Kobayashi

Kyodo

The impending general election has drawn little reaction so far from U.S. officials, but analysts believe the administration of President Barack Obama will keep a close eye on the economic policies of Prime Minister Shinzo Abe once it is over.

It is considered a foregone conclusion both in Japan and the United States that Abe will hold on to power, because the opposition camp is seen as too weak to dent the ruling coalition’s dominance in the Diet and an uncorrected vote-weight disparity favors his party.

On the day Abe called a snap election, Jeff Rathke, a U.S. State Department spokesman, told reporters he had no comment on the move, simply saying Washington looks forward to continuing its close cooperation with Tokyo “across the broad range of regional and global issues.”

“This (general election) is not going in any way to change the dynamics of governance in the Diet itself,” Mireya Solis, an expert on Japanese economic policies, said, citing the likelihood of victory for Abe’s ruling bloc.

Attention has already shifted to Abe’s post-election strategy for continuing his radical deflation-busting program after economic contractions in the second and third quarters, and for concluding the U.S.-led Trans-Pacific Partnership free trade pact discussions.

Participants in a recent event at the East-West Center research institute spent considerable time discussing whether Abe’s reforms and fiscal consolidation plans will be feasible after the election.

For the Obama administration, Japan should be a reliable and economically stable ally in the Asia-Pacific region, where China is expanding its economic and military presence, analysts say.

The U.S. and major international entities based in Washington have been closely watching Abe’s economic measures since earlier this year, when it became evident that April’s consumption tax hike to 8 percent from 5 percent hurt consumer confidence.

In October, the International Monetary Fund cut its projection for Japanese growth this year to 0.9 percent, down 0.7 point from three months earlier, citing the disastrous impact of the tax hike.

U.S. Treasury Secretary Jack Lew warned earlier this month that Abe’s team should follow through on his structural reforms — the elusive “third arrow” in his “Abenomics” program after radical monetary easing and fiscal stimulus.

The government had planned to complete the doubling of the unpopular sales levy to 10 percent with a second hike in October 2015, but Abe recently decided to postpone it until April 2017 after Japan fell back into recession.

As he announced the delay, Abe also called a snap election to purportedly seek a mandate for the delay and for Abenomics, which for now is being underpinned mostly by monetary policy alone.

Solis, a senior fellow at the Brookings Institution think tank, said it is understandable that Abe delayed the tax hike, given the fragility of the economy. “I hope that this election paves the way for the government to recommit to the cause of reform,” Solis said.

Solis said the TPP trade pact, which is being negotiated by 12 countries including the United States and Japan, is a key element that could help Abe’s structural reform drive and urged his team to keep making efforts to quickly wrap up the talks.

Although the 12 Pacific Rim countries have all but given up on sealing the TPP this year, with the snap election preoccupying economic and fiscal policy minister Akira Amari, U.S. Trade Representative Michael Froman implied at a recent event at the Woodrow Wilson International Center for Scholars that the poll will not affect overall momentum toward an early TPP deal.

The campaigning period officially starts on Tuesday, but officials from the 12 TPP countries reportedly plan to resume talks in early December in Washington, with Japanese bureaucrats expected to be among them.

The TPP members, who comprise some 40 percent of global gross domestic product, are still hampered by a plethora of sizable gaps over issues including market access and intellectual property.

They are also facing increasing pressure from China, which is not part of the TPP framework, to seek a wider free trade plan that includes the world’s second-largest economy. Chinese President Xi Jinping recently promoted Beijing’s own regional free trade initiative during a recent summit of the Asia-Pacific Economic Cooperation forum.

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