On July 21, Japan went to the polls to elect a new prime minister and decide on the make-up of the Upper House of the Japanese Parliament, the National Diet. The results were not surprising, not for the Japanese, nor for the international press. Shinzo Abe, chosen for the second time to be the acting prime minister in December 2012, was re-elected to the post. His banner, the Liberal Democratic Party (LDP), in a strong coalition with the New Komeito Party, won 76 of the Diet’s 121 available seats, giving the LDP-led coalition the majority in the Upper House. Abe’s victory is significant not only because it might change the course of Japan’s economy from stagnation to actual recovery, but it might also lead to the only stable government Japan has known in the past six years. Since 2007, six different prime ministers have served the country, with no major party getting the upper hand in Parliament, thus stalling any significant reform.
Abe has been serving as a prime minister since December and so far has shown a desire to act and change, focusing his reforms on the future economic growth of Japan. Prompted by the stagnating Japanese economy and the constant rivalry of a booming China, Abe came to power with a plan — what he called the “Three Arrows of Economic Growth,” and what journalists have dubbed “Abenomics.”
In April, Abe fired the first arrow of his reform, directed to monetary policy: he replaced the head of the Bank of Japan with Haruhiko Kuroda, an experienced economist and friend of the Asian Development Bank. Kuroda got to work early and initiated a bout of quantitative easing that would lower interest rates, while keeping the nation’s inflation target at two percent, following the example of Ben Bernanke and the American Fed. The second arrow was a fiscal stimulus package worth about $116 billion, and the third, introduced just a month ago, promised structural reforms that would seek to boost Japan’s competitiveness by making the Yen cheaper, among other measures. The first two arrows were well-received by investors and stock markets, while the third left them disappointed as it was believed to be artificial and not as daring as they had hoped. On the whole, the willingness of Abe to throw himself into the field and provide the people with an actual plan boosted his competitivness and lead to his victory during these past elections.
Nevertheless, critics agree that there’s still much left to do. Only two days after the elections, Mr. Abe’s cabinet’s approval rating fell to 56.2 percent from its high of 68 percent in June. Many people fear that these reforms would lead Japan to an instantaneous boom, only to fall back again, whereas others blame Abe for conceiving a plan that will weigh heavily on the poor. Nevertheless, these are only theoretical drawbacks. What Japan should fear instead is falling into the trap of other countries that are suffering recession and stagnation: overzealous nationalism and single-focus policy. Abenomics deals with immediate economic issues, but it fails to address other, very important matters that hamper the healthy recovery of Japan. From Japan’s status as the ‘oldest’ country in the world, to a xenophobic policy that makes it hard for immigrants to settle and hinders labor mobility, the country needs further, more daring reforms.
Abe came to the elections with an economic plan and the force of nationalism in a nation scared by stagnation and political instability. His tools for monetary policy are traditional at best, but it has been years since any politician has been daring enough to implement Western-style economic policy in Japan, and it seems that the change is welcome. But it may not be enough in the end. Mr. Abe has the opportunity to be known as the man that brought Japan back from the economic ashes. It would be a pity if he threw it away with incomplete reforms.
Image credit: rendevous.blogs.nytimes.com
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