As Japan’s Prime Minister completes four years in office, David McNeill assesses his efforts to shake up a stagnating country

In the popular television series, ‘Why Did You Come to Japan?’, a camera crew loiters at Narita Airport, Japan’s main gateway to the world, and zeroes in on unsuspecting foreigners to ask this question. Western tourists are invited to marvel at Japan’s safe streets, sleek public transport, its Michelin-starred cuisine and high-tech toilets.

The show satisfies a national craving for affirmation in this post-Brexit, post-Trump world, which to many Japanese looks chaotic and dangerous. Japan seems to function well. Unemployment is just 3 per cent, a 20-year-low. Anybody who wants work can get it: there are nearly 1.4 jobs for every applicant. Crime has fallen for 13 straight years; police recorded just a single gun fatality for the whole of 2015.

This state of affairs – and its framing by the media – helps explain why Prime Minister Shinzo Abe is on track to become Japan’s longest-serving leader since the Second World War, despite huge popular misgivings about his political agenda. Although the economy is only 2.2 per cent bigger in real terms than when he took office four years ago, and his pledges of structural reform ring increasingly hollow, Japan is wealthy, safe and peaceful. Abe is for many the least-worst option.

Abe’s political resurrection is surprising, given what preceded it. He was considered dull as ditchwater when he was plucked from the ranks of the Liberal Democratic Party (LDP) by the then outgoing Prime Minister, Junichiro Koizumi, to run the country in 2006-7. That first attempt ended in frustration, compounded by a humiliating bowel ailment.

On his second try, when the LDP retook power in December 2012, Abe returned with a more inspiring message: ‘Japan is back.’ In one of his first major speeches to an international audience in 2013, Abe pledged to turn around Japan’s $5-trillion economy. ‘Keep counting on my country,’ he said. ‘Japan is not, and will never be, a tier-two country.’

Abe’s boast did not lack chutzpah. Japan had been adrift economically and politically since stock and land prices began deflating in the early 1990s. It had endured years of spluttering growth and deflation, sapping its confidence and turning some of its once brightest corporate stars, such as Sony and Sharp, into basket cases.

Many Japanese believed – indeed accepted – that the country’s best was past. In 2010, Japan lost its place as the world’s second largest economy to China, a title it had held since 1968, when it surpassed West Germany. The loss touched a nerve and reinforced a deep fear among nationalists like Abe: that economically and militarily, China was eating Japan’s lunch.

Abe deployed a memorable policy metaphor on his return: his three ‘arrows’ – fiscal, monetary and reform – which he would fire into the listless economy.

In one of his first major speeches to an international audience in 2013, Abe pledged to turn around Japan’s $5-trillion economy

He quickly unleashed arrow number one, an eye-popping 10 trillion ($90.7 billion) fiscal stimulus package. The Bank of Japan announced a huge expansion in the country’s money supply to re-inflate the economy by 2 per cent, or 60tn to 70tn yen a year – nearly the size of the Swiss economy.

SERENE STREETS: In a chaotic world, Japan seems safe, wealthy and peaceful
SERENE STREETS: In a chaotic world, Japan seems safe, wealthy and peaceful

Deflation was declared enemy Number One. Businesses don’t invest and consumers don’t spend, explained Abe, trapping the economy in a doomed cycle. ‘If prices don’t go up, wages don’t go up,’ he said. ‘If people believe prices will be higher six months from now, then they will believe it’s best to buy now rather than later.’

All of this was a surprise. For years, Japanese governments had seemed content to manage slow economic decline. Now Abe was calling a halt. That robust interventionism won the support of many who seemed content to overlook his political hawkishness and hard-right view of Japan’s war history.

Four years later, ‘Abenomics’ still has its supporters, but William Pesek, Barron’s Asia executive editor, spoke for many last summer when he said Abe had ‘suckered’ the world. Economic growth has been anaemic, and the long-term structural problems that plagued Japan before 2012 not only remain, they may have deepened.

The immediate impact of Abe’s chest-beating was soaring share prices: The Nikkei Stock Average closed above 20,000 in April 2015 for the first time in 15 years (it has since lost some ground). But its gyrations have benefited few ordinary people.

The government’s 2 per cent inflation target, meanwhile, looks further away than ever. The key to the entire economic project is boosting wages, but despite Abe’s pleading with the Keidanren, Japan’s biggest business lobby, real wages are stagnant or falling. Many corporations, flush with record profits, have resisted his plea to deploy their record reserves of ¥242tn of cash and deposits.

Then there’s the problem of Japan’s rickety finances. Under Abe, Japan’s public debt has grown to 246 per cent of gross domestic product – the highest in the world. Over 90 per cent of that debt is domestically held, putting Japan out of harm’s way. But a string of enormous fiscal stimulus packages have deepened the hole, and without solid growth, the debt will continue to grow.

Growth is hampered, however, by perhaps Japan’s greatest challenge: how to deal with its ageing, declining population. With deaths far outstripping births, the nation has lost about 1 million people since 2010. Government projections say the labour force could collapse by 40 per cent by 2060. Abe has pledged to halt the decline at 100 million (from 127 million). But how?

The Prime Minister’s proposed solutions go to the heart of his dilemma as a conservative leader attempting potentially radical reform. The country has largely shunned the obvious solution to its looming demographic crash, mass immigration. Japan’s foreign population is about 2 per cent, and despite talk of importing millions more workers, few expect it to happen.

So Abe has turned instead to a neglected section of the workforce: women, millions of whom sit at home, their talents squandered. Yet four years into the government’s term, it is still struggling to make Japanese women ‘shine’, its clumsy catchphrase for female empowerment. The World Economic Forum’s latest gender gap index ranks Japan 111th out of 144 countries, a fall of 10 places since 2015.

Abe’s pledge to raise the average birthrate to 1.8 children per woman (from the current 1.4) has also prompted head-scratching. The birthrate in Tokyo, for example, is just 1.1. A recovery of that magnitude would require nothing less than a complete overhaul of employment practices at Japan’s corporations, with their punishing demands on young workers.

For years, Japanese governments had seemed content to manage slow economic decline

Millions of male workers still occupy full-time core positions in Japanese corporations. Long working hours make it impossible for most to share child-rearing. Labour reforms introduced a decade ago, meanwhile, have accelerated the growth in the number of temporary workers, who are now roughly 40 per cent of the workforce, and disproportionately female.

Critics increasingly wonder whether Abe has the stomach for a fight with corporate Japan to win a bigger slice of the pie for women and young people. Some also note the growth of the working poor, defined as those who earn less than 2 million a year. Their numbers have risen steadily since the LDP returned to power.

Arguably, Abe’s greatest strength throughout has been the weak, divided political opposition. He has now won three elections since 2012, despite those poor economic figures and pushing a string of unpopular policies, including a secrecy law and a controversial ‘reinterpretation’ of the country’s pacifist constitution, expanding its military role abroad.

The likely target of that reinterpretation, and a series of record-breaking military budgets, is China. The two countries have squared off over a clump of rocks in the East China Sea that Japan owns but China claims. The Prime Minister’s revisionist instincts, and rejection of what the political right calls ‘apology diplomacy’ for the nation’s wartime misdeeds against China, have complicated what was already a fractious relationship.

Does Abe have the stamina to peacefully handle China’s rise, boost the female workforce, lower the drawbridge to immigration and face down the Keidanren? Not a few have pointed to the contradiction of this great reform project, led by the head of a party that helped build up Japan’s sclerotic business structure in the first place.

Unless he challenges Japan Inc, however, Abenomics looks very much like more of the LDP’s old spend-and-pump economics, garnished by a potentially dangerous nostalgia for Japan’s big-power status. Television programmes might reinforce the popular idea that Japan is the envy of the world, but narcissism cannot disguise the long-term problems that lurk beneath its placid surface.

Dr David McNeill writes for The Economist, The Irish Times and other international publications, and is co-author of Strong in the Rain, survivors’ stories from Japan’s 2011 earthquake, tsunami and nuclear disaster. He teaches media and politics at Sophia University in Tokyo. Previously he taught at Liverpool John Moores University.

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