Published daily by the Lowy Institute

Abenomics loses some of its razzle-dazzle

Domestic economic reform and constitutional reform should always have been two sides of the same coin.

Women playing taiko drums during the Sanja matsuri festival in Asakusa, Japan. (Photo: Damon Coulter/Getty Images
Women playing taiko drums during the Sanja matsuri festival in Asakusa, Japan. (Photo: Damon Coulter/Getty Images

One of the hallmarks of Shinzo Abe’s longevity in power has been his ability to switch back to bread and butter economic issues when he tests the patience of voters with his more nationalistic inclinations.

But an interesting feature of his latest series of political setbacks has been the way they have occurred against a background of debate about just where his eponymous Abenomics reform plan stands today.

'It will not be too long before the term 'Abenomics' will join 'Cool Britannia', 'the end of history' and 'Brics' in the cupboard of cast-offs: ideas that once had thrilling, zeitgeisty chic, but are now too threadbare to be worn in public,' said a recent Financial Times article which was nonetheless positive about the reforms.

The economists at Capital Economics – also favourable about past achievements – concluded: 'While we don’t have high hopes for structural reform if Mr Abe stays in office, nor do we if he were to leave.'

Then there was the latest International Monetary Fund staff report that, while also noting some successes, said: 'After more than four years of Abenomics, inflation is still below target, high public debt is still a concern, and structural bottlenecks remain.'

But now, after seeing his Liberal Democratic Party spurned in Tokyo’s city election, and becoming personally embroiled in scandals over alleged favouritism for friends leading to last week’s Cabinet shake-up, Abe has flicked the switch back to Abenomics, perhaps with some added popularism.

In weekend interviews he seemed to be playing down the prospects of pushing ahead quickly with plans to amend the pacifist provisions in the Constitution to which he has devoted much political energy this year. 'I have caused a stir, but it will be difficult to gain a majority in a referendum unless everybody is on the same page and pushes forward with the plan,' he told a television interviewer.

The 9% increase in poll support for the government to 44% in the days immediately following the cabinet changes suggests the old political playbook still has potency. The fact the opposition Democratic Party has just gone through its almost annual leadership turmoil has only added to the repetitive feel of these events.

And it must be acknowledged that the notable foreign scepticism about Abenomics comes at a time when Japan is close to producing its longest run of economic growth this century.

Nevertheless, new reality number one is that Abe was forced into this Cabinet reshuffle by a challenge from within in the shape of the renegade former LDP minister turned independent Tokyo governor Yuriko Koike, rather than the official opposition.

And new reality number two is that Abe has been forced to pull his head in by the voters due to personal probity issues rather than another round of the long-running Japanese angst about whether to stick with post-war pacifism or modernise its approach to regional security policy in line with its economic standing.

The fact that the security moderate and former foreign minister Fumio Kishida has decided – or been allowed – to shift out of Abe’s shadow in the Cabinet and carve out his own political persona as the LDP’s policy chief shows there is some serious thinking going on about a post-Abe Japan.

Most other new ministers are also more experienced, steady types than some of Abe’s past choices, suggesting that the prime minister realises he needs to make up for some personal credibility losses with a stronger team around him.

As for Abenomics, the big danger now is that the dramatic head-turning effect of the unusually individualistic Bank of Japan governor Haruhiko Kuroda’s pro-inflation policy is wearing out faster than the incremental, fragmented structural reforms promised by Abe can deliver results.

And the latest IMF report devotes interesting attention to concern that the ageing, shrinking population is an increasingly serious issue extending beyond obvious policy areas such as health care costs to financial system stability.

Perhaps the independent-minded new foreign minister Taro Kono can pick up the burden of breath-taking reform from Kuroda and back a real immigration program with a decent intake of refugees.

Domestic economic reform and constitutional reform should always have been the two sides of the same coin, rather than political levers to pull when desired. And pulling the levers may be losing some of its potency for Abe these days.

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