Critics of Prime Minister Shinzo Abe’s bid to alter Japan’s postwar pacifist Constitution say the fate of the July 10 Upper House election depends on whether people agree to the revision.
Liberals are desperately urging voters to say no to Abe and are calling for the abolition of controversial security legislation the prime minister forcibly rammed through the Diet last year.
But recent polls have suggested that voters have other priorities: For many, the economy and their everyday lives seem to take precedence.
In the latest poll conducted by public broadcaster NHK from Friday through Sunday, the issue of social security took center stage, with 29 percent of 2,044 respondents saying it was the most important issue when casting their ballot.
This was followed by economic policies with 26 percent and issues involving the consumption tax at 12 percent. Only 11 percent of respondents cited constitutional issues.
“In a stump speech, I will first emphasize the economy. I will say that jobs have increased and corporate profits have surged,” said a senior LDP lawmaker close to Abe earlier this month.
The Democratic Party, the largest opposition force, has asked voters to stop Abe’s ruling coalition of the Liberal Democratic Party and Komeito from occupying more than two-thirds of the 242-seat chamber, a prerequisite to initiating a national referendum on any constitutional revision.
But their election strategy is “out of focus” and it will only “benefit us,” the lawmaker said, speaking on condition of anonymity.
So far, the coalition’s campaign appears to be working. According to a prediction published by major news outlets over the weekend, Abe’s ruling coalition is now likely to win more than half of the 121 seats up for grabs, and together with other right-wing minor parities, the pro-revision camp is seen as likely to achieve its two-thirds majority.
Despite high levels of interest among voters, however, ruling coalition politicians continue to cite economic indicators in ways that are confusing — if not downright deceptive — with some facts appearing to contradict each other.
Economists have said that during election campaigns, the ruling coalition, and in particular Abe, has only discussed figures convenient to them, ignoring the overall picture of the still-sluggish economy after three years of Abenomics policies.
“There is a huge gap between the macroeconomy and microeconomy shown by indicators. That’s a key point of Abenomics,” said Kenji Yumoto, a senior economist and vice chairman of think tank The Japan Research Institute Ltd.
“And Prime Minister Abe has only talked about microeconomic ones,” Yumoto said.
Abenomics is a set of ultraloose monetary policies led by the Bank of Japan, aggressive fiscal measures and structural reforms to raise Japan’s growth potential.
In their campaigns, Abe and ruling lawmakers have often emphasized that Abenomics has improved employment and greatly increased corporate profits, which has in turn boosted tax revenues for both local and central governments.
Indeed, some economic indicators are favorable. The jobless rate stood at 3.2 percent as of April, the lowest-level in 18 years, and the job-to-applicant ratio was 1.34, the highest level in more than 24 years.
According to the Finance Ministry, the ordinary profits of 7,129 major nonfinancial firms hit a total of ¥20.29 trillion in the April to June quarter of 2015 — a record high. The January to March quarter of this year saw profits at ¥15 trillion.
Higher corporate profits have also boosted tax revenues for local and central governments. Abe claims these have increased by ¥13 trillion thanks to Abenomics, pledging to use some of the “fruit” of his economic policies to cover expanding social security budgets and also simulate the economy further to “break away from deflation.”
“The job-to-applicant ratio has exceeded 1 in all of the 47 prefectures. This is a first in the postwar years, and something that was not achieved even in the period of rapid economic growth (of the 1950s and ’60s) nor in the bubble economy” of the late 1980s, Abe said during a TV debate aired Friday.
However, economists warn the reality of Japan’s macroeconomy is not as rosy as Abe would have people believe. Overall economic performance remains sluggish, they say.
Japan saw real economic growth, or nominal economic growth adjusted for inflation or deflation, of only 0.8 percent last year, one of the lowest levels among major developed countries.
On average, Japan’s economy grew only 0.6 percent a year over the past three years of Abenomics, Yumoto of The Japan Research Institute pointed out. Meanwhile, consumer spending, which accounts for about 60 percent of the economy, fell in 2014 and 2015, according to gross domestic product figures released by the Cabinet Office. It is the first fall for two consecutive years recorded in the postwar period.
Bank of Japan Gov. Haruhiko Kuroda confidently vowed three years ago to bust deflation by stimulating a 2 percent inflation in just two years.
But despite the BOJ’s ultraloose monetary policy and its purchase of massive amounts of Japanese government bonds, the core consumer price index, which does not include prices in fresh foods, grew only 0.5 percent last year due to a lack of demand for funds in the real economy.
The core CPI even fell in March and April this year by 0.3 percent, respectively, compared with the same month a year ago. This has left Kuroda, who has already pushed back the target time for taming inflation to the end of fiscal 2017, with few options.
Yukio Noguchi, an economist and adviser at Waseda University’s Institute of Financial Studies, argued that almost all of the “achievements” Abe has boasted of can be attributed to the yen’s depreciation.
“Abenomics hasn’t increased output or wages,” Noguchi said, explaining that the prime minister’s economic policy has failed to stimulate the economy.
“The yen’s depreciation boosted corporate profits of export-driven companies and it increased government tax revenues. That’s all that happened,” Noguchi said.
It is widely believed that the BOJ’s aggressive monetary easing at least helped pushed down the yen’s value and aided major export-reliant companies.
But Noguchi argued that the BOJ’s easing merely triggered speculation among currency traders. The real cause of the yen’s depreciation, Noguchi said, was the eurozone financial crisis.
Indeed, the yen began falling against other major currencies as the eurozone was facing crisis in the fall of 2012, far before Abe took the power in December 2012 and Kuroda took up his post in March the following year.
Now the BOJ’s monetary tools appear almost powerless as external factors abound.
The yen, which began surging against the dollar earlier this year because of apparent reluctance by the U.S. Federal Reserve to further boost interest rates there, is again rising after Britain’s decision to leave the European Union. This has seen the currency value shoot up to around the ¥100 level against the dollar.
Throughout these storms, the BOJ has maintained its ultraloose monetary measures, a fact that has underlined the limit of the BOJ’s influence as well as that of Abenomics.
“Now that the yen’s value has risen, everything that happened so far will be reversed,” Noguchi said. “It means corporate profits will decrease, stock prices will fall and government tax revenues will dwindle.”
Katsuya Okada, president of the Democratic Party, has taken a similar view of the government’s economic policies.
“Now the Abenomics party is over,” Okada told reporters Friday, shortly after the British referendum result.
Abenomics heavily relied on the BOJ’s monetary easing and government fiscal spending, which will only have temporary effects in boosting the economy, Okada said.
“No fundamental problems (with the Japanese economy) have been dealt with, and trends in the currency and stock markets will be reversed. Britain’s exit from the EU will only accelerate it,” Okada said.
According to Noguchi, a recent fall in the unemployment rate and a rise in the job-to-applicant ratio, have also been worrying signs for the Japanese economy in the longer term.
Given the rapidly aging society and fewer children being born, Japan is likely to face a severe shortage of workers that will limit the nation’s economic growth potential, Noguchi said, echoing the opinions of numerous other economists.
Another limiting factor has been the increase of lower-paying jobs, such as those at nursing services for the elderly and nonregular, temporary staff and contract workers, Noguchi noted. He said he was also concerned over the eventual consequences of Abenomics, which could stoke an economic “catastrophe.”
The BOJ’s introduction of its negative interest-rate policy has pushed down the yield on benchmark JGBs to below zero percent, which has made the JGBs less attractive to banks since holding them until maturity incurs losses, Noguchi said.
Indeed on June 13, Bank of Tokyo-Mitsubishi UFJ Ltd., one of Japan’s three largest mega-banks, told the Finance Ministry that it would relinquish its status of a “primary dealer” of the JGBs, apparently fearing possible losses.
“This means the BOJ’s monetary easing, which buys massive amounts of JGBs from banks, will soon reach its limit,” Noguchi said.
If many banks begin shying away from buying JGBs, it could push up interest rates, dramatically increase debt-serving costs of the government and eventually lead to a fiscal crisis, Noguchi warned.
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