ISE, MIE PREF. – The Ise-Shima Group of Seven summit meeting was arguably one of the biggest moments on the international diplomatic stage for Prime Minister Shinzo Abe, who chaired this year’s two-day event here in Ise, Mie Prefecture, which ended Friday.
But in the end, Abe may have tried to use the G-7 summit for his own domestic political goal: finding or creating a pretext to break his pledge to raise the consumption tax from the current 8 percent to 10 percent next April.
Abe, having armed himself with the argument of deteriorating economic conditions in emerging economies, most notably China, was clear in his message to the other G-7 leaders: the world economy is now facing a looming crisis.
He urged the group to take coordinated action, including more fiscal spending to rectify the situation.
But his counterparts were not swayed by his pitch. The joint communique issued Friday only noted that “downside risks to the global outlook have increased” since last year’s G-7 summit.
“Abe probably wanted to pave the way for the postponement of the consumption tax hike” by emphasizing the risk of a looming global crisis, said Yasunari Ueno, chief market economist at Mizuho Securities Co.
To postpone the unpopular tax hike, Abe appeared to be pushing the idea of a global economic crisis, which would have given him the excuse he needed.
Under a law that came into effect on March 31, the government is, in fact, bound to implement the tax hike as scheduled for April.
Abe had repeatedly said publicly that his ruling coalition would not revise the law unless Japan faced a major economic shock comparable to that of the 2008 global financial crisis triggered by the bankruptcy of U.S. securities firm Lehman Brothers, or the 2011 quake-tsunami disaster that devastated coastal areas of the Tohoku region.
To sell his argument to the other G-7 members, Abe prepared in advance all the words he would say in his presentation, according to a high-ranking Japanese official.
Abe even presented four charts highlighting the severity of slowdowns in emerging economies, according to the official, who monitored Thursday’s G-7 session.
“(Abe) likes to talk uninterruptedly from the beginning to the end, based on one story,” another aide to the prime minister said.
But according to Ueno from Mizuho Securities, few world leaders and economists bought the idea of a global crisis.
“His assessment of the current economic situation is very different from those of economists and other G-7 leaders,” Ueno said.
During a news conference on Friday, French President Francois Hollande said he did not believe the world was facing a crisis. German Chancellor Angela Merkel and British Prime Minister David Cameron also disagreed with Abe’s view, according to overseas media reports.
Still, at a news conference the same day, Abe repeated the idea. He mentioned the “Lehman shock” as many as seven times, arguing that today’s global economy looked similar to the global economy shortly before the 2008 financial crisis.
He then declared he would consider postponing the planned consumption tax hike scheduled for April, given the possible adverse effects from a potential “global crisis.”
Masaki Kuwahara, a senior economist at Nomura Securities Co., said he believed Abe emphasized the risk of a global crisis in order to attribute shelving the sales tax hike to outside factors rather than the failure of his economic policy known as Abenomics.
The measures under Abenomics are centered on ultra-loose monetary policy by the Bank of Japan and aggressive fiscal spending by the government.
In spring 2013, BOJ Gov. Haruhiko Kuroda started his Japanese bond-buying spree as he confidently declared it would achieve an annual inflation target of 2 percent within two years and break the nation out of its long-standing economic slump.
But due to weak demand in the real economy, the BOJ’s monetary policy has still failed to achieve that goal. Consumer confidence remains weak despite three years of Abenomics.
Abe had until now insisted that his economic policies have been successful and the nation’s economy would be robust enough to absorb the temporary shocks from a consumption tax hike next April. The tax increase was designed to secure long-term revenues to cover rapidly growing social security costs.
Now, instead of his sought-after pretext, opposition lawmakers are ready to criticize Abe in the run-up to the Upper House election in July.
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