Japan’s Abe Once Again Puts Off Difficult Reforms

Prime Ministers Matteo Renzi of Italy and Shinzō Abe of Japan attend a ceremony in Tokyo, August 3, 2015
Prime Ministers Matteo Renzi of Italy and Shinzō Abe of Japan attend a ceremony in Tokyo, August 3, 2015 (Palazzo Chigi)

Japanese prime minister Shinzō Abe once again backed away from reform on Wednesday when he delayed a planned sales tax increase that was meant to shrink a huge deficit.

At this point, it seems we would be deluding ourselves if we still take “Abenomics” seriously as a program of economic reform.

When he returned to power in 2012, Abe promised to tackle sclerotic growth in three ways: short-term monetary and fiscal stimulus, long-term fiscal consolidation and structural economic reform.

He only managed the first and has constantly found excuses to put off the second and third — which are the more important if Japan is to find its way back to growth. Read more

Political Dynasties and Their Discontents

Members of the Bush family watch a sports game at the White House in Washington DC, June 3, 2001
Members of the Bush family watch a sports game at the White House in Washington DC, June 3, 2001 (George W. Bush Presidential Library and Museum)

Political dynasties have always been a big part of human civilization and today is no exception.

In the United States, of course, the rise of Donald Trump (and Bernie Sanders) was at least partially a reaction to the dynastic, Clinton-versus-Bush election that only last year most Americans were expecting to get.

Among other things, Jeb Bush’s candidacy split the non-evangelical portion of the Republican establishment in two, preventing it from coalescing around Marco Rubio early on and thus leaving an opening for Trump to force his way into. Hillary Clinton’s candidacy, meanwhile, may even leave the door open for Trump to become president, however unlikely and unappealing that may be. Read more

Japan’s Economy Shrinks as Abe Puts Off Reforms

Night falls in Tokyo, Japan
Night falls in Tokyo, Japan (Unsplash/Simon Launay)

Japan’s economy shrank at an annualized pace of 1.6 percent between April and June of this year, calling into question Prime Minister Shinzō Abe’s commitment to controversial but pro-growth reforms.

Exports fell, as did consumer spending, depressed by a sales tax hike.

The Bank of Japan’s weakening of the yen has also made imported foods more expensive, putting further pressure on households. Read more

Japan’s Abe Calls for Pacific Trade Progress, Promises Reforms

American president Barack Obama and Japanese prime minister Shinzō Abe at the White House in Washington DC, April 28
American president Barack Obama and Japanese prime minister Shinzō Abe at the White House in Washington DC, April 28 (White House/Pete Souza)

Japanese prime minister Shinzō Abe promised to enact long-overdue agricultural reforms on Wednesday as he encouraged American lawmakers to make progress on a Pacific trade treaty.

Addressing the United States Congress in Washington DC — the first Japanese leader to do so — Abe said Japan was in the middle of a “quantum leap” toward liberalization. “We have regained our spirit of reform and our sense of speed,” he said. “Japan will not run away from any reforms.”

However, since his election in 2012, the conservative party leader has done little to overhaul his island nation’s agriculture and labor markets. The former are critical if Japan is to join the United States and ten other countries in a Trans Pacific Partnership that could boost global economic output by $220 billion over the next ten years.

The trade talks stalemated last year when Japan’s negotiators walked out of a meeting with their American counterparts. The Americans had taken the Japanese to task for refusing to even discuss a cut in tariffs and withdrew their own offer to lower tariffs on imported auto parts.

The Economist cited one Japanese policymaker at the time describing the episode as the most acrimonious since the bruising trade wars of the 1980s.

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.

Despite promises of reform, Abe has done little to make Japan more competitive.

The United States are not without blame. The country subsidizes its own automakers and farmers and many lawmakers, especially in President Barack Obama’s Democratic Party, are reluctant to expand foreign access to a variety of markets, mostly food but also biodiesel and ethanol production, for fear of job losses in their districts and states.

With Republicans controlling both chambers of Congress, Obama may yet get the authority he needs to negotiate the Pacific trade pact.

The president expressed optimism on Tuesday, saying, “The politics around trade can be hard in both our countries but I know that Prime Minister Abe, like me, is deeply committed to getting this done and I’m confident we will.”

Abe reminded lawmakers the following day that the Pacific partnership was about more than trade. “It is also about our security,” he said. “Long-term, its strategic value is awesome.”

Obama’s team sees the treaty as part of their “rebalancing” strategy — popularly known as the Asia “pivot” — designing to bring China into the existing liberal world order rather than have it attempt to create a competing, presumably more authoritarian, order under its leadership.

China and Japan are also embroiled in a sovereignty dispute over the Senkaku Islands, situated northeast of Taiwan. Like many of China’s neighbors, Japan worries about the country’s willingness to use force to press its territorial claims.

China isn’t part of the trade talks. But a successful treaty, involving the world’s first- and third largest economies, would pressure the country to meet its standards and stop trying to game global trade to impede foreign companies.

Disenchanted Japanese Give Abe Another Chance

Prime Minister Shinzō Abe of Japan addresses lawmakers in Tokyo, June 17
Prime Minister Shinzō Abe of Japan addresses lawmakers in Tokyo, June 17 (Kantei)

Japan’s ruling conservative parties were on track to win another majority in snap elections on Sunday but low voter turnout reflected rising disenchantment with Prime Minister Shinzō Abe’s economic reforms.

Japanese media projected Abe’s Liberal Democrats and their socially more conservative coalition partners in the Komeito party would win more than 317 seats in the country’s lower house of parliament, a loss of under ten seats but enough to maintain a comfortable majority.

However, barely one in two eligible voters turned out compared with almost 60 percent turnout in the last election in 2012.

Abe called early elections last month to seek a fresh mandate for his economic policy when the country slipped back into recession.

Key parts of the reform agenda have stalled.

A more expansionary monetary policy has successfully driven down the value of the yen, benefiting exports. But it has also made imports more expense at a time when wage increases have not kept pace with price rises.

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.

While Abe has promised to lower Japan’s corporate tax rate, which is 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 has recognized the problem of low female participation in the labor market but done little to increase the rate.

Productivity is also 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.

Trade negotiations with other countries around the Pacific Ocean, including the United States, are on hold because Japan is reluctant to reform agriculture and discuss significant cuts in tariffs.

It is doubtful Sunday’s election result will boost Abe’s ability to push through meaningful reforms. The prime minister has spent much political capital on restarting nuclear reactors taken offline after the 2011 disaster at Fukushima and reinterpreting Japan’s constitution to allow for military deployments abroad, a move that strained relations with the pacifist Komeito party.

Abe’s victory probably owes more to voters’ mistrust of the opposition Democratic Party to do better. The party saw three prime ministers in as many years when it ruled the country between 2009 and 2012 and failed to arrest Japan’s slide into economic malaise.

Japan’s Abe Calls Snap Elections as Reforms Stall

Prime Minister Shinzō Abe of Japan chairs a ministerial meeting in Tokyo, June 20
Prime Minister Shinzō Abe of Japan chairs a ministerial meeting in Tokyo, June 20 (Kantei)

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.

Abe’s Refusal to Shake Up Japan’s Labor Market Spells Decline

Tokyo, Japan at night, December 4, 2008
Tokyo, Japan at night, December 4, 2008 (Flickr/Cocoip)

When Prime Minister Shinzō Abe finally unveiled his plans to make Japan more competitive in June, the proposals underwhelmed. While he promised to lower Japan’s corporate tax rate, currently the highest in the developed world, to below 30 percent, Abe shied away from comprehensive agriculture and labor reforms that could revitalize the island nation’s economy. The latter, especially, are sorely needed.

Japan’s rigid labor laws, which make it nearly impossible to lay off workers, have led many companies to limit hiring to part-time or temporary employees who are typically paid a third less. 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.

For both genders, regular jobs have fallen 3.1 percent in recent years. The average wage per worker in real terms has dropped 9 percent since 1997 and 2 percent since Abe took office just two years ago.

Productivity is lagging as a result. 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 now a quarter below the average for rich countries.

Abe has done little to reverse these trends. Some of his policies are actually making things worse.

Japan’s expansionary monetary policy, promoted by Abe as one of the three “arrows” of his economic reform program, has helped the yen lose as much as a quarter of its value, boosting exports. But it has made imports much more expensive at a time when the closure of Japan’s nuclear power plants, which once provided almost a third of its electricity, necessitates higher imports of oil and natural gas. Manufacturing firms that refuse to cope with electricity shortages and rising prices are looking to outsource more of their production.

The stimulatory effect of the second arrow of Abe’s reform program, higher government spending, has been more than offset by tax rises that are necessary to slow the growth of Japan’s debt, equal to 227 percent of economic output last year. The government has raised the sales tax from 5 to 8 percent. Another hike, to 10 percent, is scheduled for next year. That will naturally depress consumer spending.

The negative economic outlook is exacerbated by worrying demographics. Whereas 70 percent of Japanese men in their thirties are married, only 25 percent of those with irregular jobs are. Many young Japanese are putting off marriage and having children — some indefinitely — yet they remain, by and large, hostile to letting in more immigrants who could compensate for their own low fertility. The population is rapidly aging as a result and will soon start to shrink.

The third arrow of Abe’s program was supposed to contain meaningful reforms that would put Japan on a more sustainable economic trajectory. It didn’t. By refusing to shake up his country’s labor market, the prime minister is hastening Japan’s decline.