“Who is this Aso?” This was the question, verbatim, Tokyo-based strategist Nicholas Smith asked in a 2008 report on Japan’s new prime minister of the moment, Taro Aso.
Like most Japanese leaders back then, the hapless Aso lasted a year. One of Shinzo Abe’s main contributions to Tokyo politics is stopping that revolving door. He’d rotated through it himself once before — from 2006 to 2007. When he returned to power in 2012, Abe pledged to stick around for a while. At the time, pundits joked that Japan had changed the meaning of “Group of Seven,” the number of leaders it had in six years. Abe’s point was a good one: so many changes at the top dent Tokyo’s stature and leave no time for a reform-minded government to change things.
Abe erred, though, by bringing one of those revolving-mandarins with him, the above-mentioned Aso, to be his finance minister.
As deflation deepens, the Nikkei 225 craters and foreign pundits who once celebrated Abe’s audacity pen mea culpas, the debate is on where things went wrong. The problem, of course, is too much reliance on monetary easing and too little structural reform. Oddly, though, there’s been scant focus on personnel and how poor choices paved the way for today’s pain.
That gets us back to Smith’s “Who is this Aso?” question. For Abe, choosing Aso to run the hugely powerful Finance Ministry seemed like a good idea at the time. Japanese politics is very factional. As a former prime minister, grandson of late-1940s leader Shigeru Yoshida and scion of a wealthy family and its Aso Cement Co., Aso’s lineage seemed to bring gravitas to Abe’s Cabinet.
But 1,227 days on, Abe should admit entrusting key parts of his shock-therapy program to Aso was a mistake, and an increasingly costly one at that. He’s been, to put it kindly, an absentee finance czar who’s achieved virtually none on the reforms the Abe administration promised to enact by now. Other than an economically suicidal consumption tax hike in 2014, there’s little to say about Aso’s role these last few years.
Other than gaffes, that is. Asked in 2013 about swelling welfare costs, Aso said the elderly should be allowed to “hurry up and die” for the good of the motherland. He irked female voters by chastising “people who don’t give birth.” When asked about executives voicing doubts about the economy, Aso said companies not making money are either “unlucky or incompetent.” Nor did he do Abe’s push to revise the Constitution any favors by saying lawmakers should be “learning from the Nazis.” The fallout was all the worse, considering the wartime exploits of Aso Mining Co., which used Allied prisoners for labor.
There was face-palming all around Tokyo when Aso credited bad English skills among Japanese bankers for saving them from buying subprime debt. When he was prime minister, Aso, an avid fan of manga, thought it wise to send a few mini-skirt-clad teenage schoolgirls around the globe to play up Japan’s all-things-cute craze. His effort to stimulate interest in Cool Japan was no match for the ick factor for foreign journalists.
Thing is, Abe’s economic blueprint needs a pitchman — a trusted and accessible personality to articulate its ambitions, merits and progress to 126 million people in Japan and beyond. And Aso, 75, isn’t it. His lack of gravitas on the job can be seen in the yen’s powerful rally. The more he ratchets up his verbal campaign to cap the currency, the more traders ignore him. The more Aso implores foreign investors to stop dumping Nikkei stocks, the faster they sell. The more he calls on China to get its imbalances in order, the more Beijing rolls its eyes.
It hardly helps that another key face of reform, economy minister Akira Amari, resigned in January over a bizarre political funds scandal. He was Abe’s point man on Trans-Pacific Partnership negotiations and generally well-respected in economic circles. Sadly, Abe replaced him with Nobuteru Ishihara, a lightweight with little known financial or economic experience. It’s also unclear if the Ministry of Economy, Trade and Industry has shaken off the October 2014 resignation of leader Yuko Obuchi over another funding controversy. Days later, Obuchi’s replacement, Yoichi Miyazawa, was hit by reports that his office paid ¥18,000 to a sadomasochism sex show club out of political funds.
That, meanwhile, leaves Haruhiko Kuroda in charge of the economy show, one of which the Bank of Japan is rapidly losing control. The 30 percent yen devaluation Gov. Kuroda began in April 2013 is disappearing just as the downward price pressures at which his monetary bazooka aimed return. Like Aso, Kuroda’s influence with markets — and his gravitas — is gone. The open-mouth operations Tokyo perfected in recent decades no longer works its magic.
The answer, as I regularly point out, is Abe’s team loosening labor markets, cutting trade tariffs, catalyzing a startup boom, empowering women and increasing productivity. The same goes for executives improving governance amid a bull market in corporate embarrassment — Takata’s deadly air bags, Toshiba’s book-cooking, Mitsubishi Motors’ fudged fuel-economy data.
But, with all due respect, is Aso the man for the job? Kuroda’s BOJ is largely a spent force in Japan’s revival battle, METI staffers are trying to keep tabs of who runs the place and economy minister Ishihara is probably still Googling “Abenomics.” And then we have Aso, who’s known more in today’s G-7 circles for wearing colorful Frank Sinatra-like hats to summits than offering applicable insights.
The Finance Ministry’s revolving door moves even faster than the one at the prime minister’s residence. Aso is Japan’s 11th finance minister since Abe first held office in 2006. But for better or worse, rebooting Abenomics will require booting those failing the Japanese people and the economy. Aso should top any list of heads that need to roll in Tokyo.
Based in Tokyo, William Pesek is executive editor of Barron’s Asia and writes on Asian economics. www.barronsasia.com