Japan’s Abe Calls Snap Elections as Reforms Stall

Japan’s prime minister seeks a fresh mandate for an economic reform agenda that has so far disappointed.

Japanese prime minister Shinzō Abe leaves talks with European Union leaders in Brussels, May 7
Japanese prime minister Shinzō Abe leaves talks with European Union leaders in Brussels, May 7 (Council of the European Union)

Japan’s prime minister, Shinzō Abe, called a snap election for the lower house of parliament on Tuesday to seek a fresh mandate for his stalled economic reforms. The announcement came a day after data showed the country had slipped back into recession.

Abe also said he would delay a planned sales tax increase to 10 percent. His earlier tax hike, from 5 to 8 percent, is widely blamed for pushing the world’s third-largest economy into negative growth.

The nationalist politician, who staked much of his political capital after returning to power in December 2012 on reasserting Japan’s regional influence, nevertheless insisted during a news conference in Tokyo that his economic program was working.

“I am aware that critics say ‘Abenomics’ is a failure and not working but I have not heard one concrete idea what to do instead,” he said. “This is the only way to end deflation and revive the economy.”

But key parts of his reform agenda remain stalled.

A more expansionary monetary policy has successfully driven down the value of the yen, boosting exports. But it has also made imports more expense.

Consumption has been further depressed by tax rises that were needed to slow the growth of Japan’s debt which now equals 237 percent of annual economic output, according to the International Monetary Fund.

While Abe has promised to lower Japan’s corporate tax rate, currently the highest in the developed world, to under 30 percent, he has shied away from comprehensive agriculture and labor reforms that could revitalize the island nation’s economy.

Powerful agricultural cooperatives and high subsidies shield Japan’s farms from international competition while rigid labor laws make it nearly impossible to lay off workers. Many firms limit hiring to part-time or temporary workers who are typically paid a third less than full-time employees. 17 percent of Japanese men aged 25 to 34 now hold such jobs. For women of all ages, the rate is a staggering 57 percent. 70 percent of Japanese women also still quit their job when they have children.

Abe recognizes the problem of low female participation in the labor market but has done little to increase the rate.

Productivity is lagging. Firms are reluctant to invest in workers who are on temporary contracts while those with secure jobs need not compete. Japan’s GDP per hour worked is a quarter below the average for rich countries.

A trade pact with other countries around the Pacific Ocean that could boost Japan’s economy is also in doubt due to the country’s unwillingness to reform agriculture and discuss significant cuts in tariffs.

In power almost without interruption since the end of the Second World War, Abe’s Liberal Democratic Party is still on track to win the early election in December but his coalition with the conservative and pacifist Komeito party could emerge with a smaller majority.

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