After delivering a much-anticipated statement on Japan’s war legacy and engaging in a bruising legislative fight over defense laws, Prime Minister Shinzo Abe got a reminder on why he needs to return his focus to the economy.
With tepid wage growth making consumers unwilling to spend, the world’s third-biggest economy snapped two quarters of expansion to contract 1.6 percent in the three months through June, slightly better than the median forecast of a 1.8 percent fall.
At a time when the economy was losing momentum, Abe’s agenda was dominated by the war statement — key to improving relations with China and South Korea — and the fight to boost the role of the military. That battle led to a plunge in his popularity that could hamper his efforts to push ahead with some unpopular measures to revive growth.
“The Abe administration spent too long debating the security bills,” said Goshi Kataoka, senior analyst at Mitsubishi UFJ Research and Consulting Co. in Tokyo. “Debate on the bills in this parliamentary session meant the growth strategy faded. He should return to the origin of ‘Abenomics,’ ” his economic policies.
In his statement Friday on the 70th anniversary of Japan’s defeat, Abe upheld previous official apologies and said the country had inflicted “immeasurable damage and suffering,” words that may help ease strained ties with China and South Korea, Japan’s two biggest Asian trading partners.
The statement came weeks after passage of the defense bills in the Lower House of the Diet, ending a months-long debate that required his regular presence. The law, which will loosen the pacifist constraints of the postwar Constitution and allow the military to defend allies, still needs final passage by the Upper House, where Abe will face another fight in September.
In recent months, lawmakers spent more than 150 hours debating the security legislation, leaving little time for other business. Since the Diet session opened in January, only 13 bills related to Abe’s economic reforms passed the Diet, compared with 30 during last year’s session, according to the prime minister’s office.
“It will be a plus for Abe’s administration to shift its focus back to economic policies,” said Robert Feldman, chief economist at Morgan Stanley MUFG Securities Co. in Tokyo.
The time spent on the security bills is part of the reason why this year’s basic economic plan and growth strategy released by the Abe government in June were “disappointing,” Feldman said.
The debate on the security bills fueled fears Japan could be dragged into a foreign war and sparked rare public protests, sapping Abe’s popularity. Support for the government fell to 37 percent in a poll this month by broadcaster NHK, down from a peak of about 60 percent.
Since coming to power in December 2012, Abe has delivered unprecedented monetary easing and fiscal stimulus that helped push the Topix stock index to an eight-year high this month, but failed to translate into a broader recovery.
The slump in his popularity may make it more difficult for Abe to push ahead with structural reforms to areas including the labor market, energy industry and agricultural sector that are seen as needed to make the economy more competitive and to boost long-term growth.
“Abe has already done easy structural reforms and what remains are reforms which hurt the majority of (the) population,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. “Abe won’t be able to carry out those reforms as the approval rating will fall further.”
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