Japanese Economic Policy in Focus, With Prime Minister Shinzo Abe Set to Lead Through 2021
Japanese Prime Minister Shinzo Abe secured the continued leadership of the Liberal Democratic Party (LDP) on Thursday 20 September, following an internal contest within his party that he won by a wide margin. Abe will serve as prime minister through 2021, which has prompted scrutiny over how and whether the Japanese leader will aim to implement the remaining steps of his eponymous economic strategy.
Abe will be entering his third term in the premiership, having served continuously since 2012 and having had a brief stint in the role from 2006 to 2007. Since taking office in 2012, Abe has been working to put in place an economic strategy widely known as “Abenomics,” built around three “arrows” aimed at ending decades of deflation in the world’s third largest economy and achieving the desired inflation rate of two percent.
Japan is also struggling against significant demographic challenges, with an ageing population and chronically low numbers of women in the formal workforce, despite some efforts at pursuing public policies to facilitate female participation. Bringing more young people in the workforce is also considered key for Japan’s long-term economic success, as is improved disaster preparedness, after the fallout from catastrophic events such as the 2011 earthquake and tsunami on the Tōhoku coast that killed and injured scores of people, while also inflicting heavy damage on domestic infrastructure.
Abe faced off in the leadership contest against Shigeru Ishiba, who has previously held ministerial roles in defence, economic revitalisation and population concerns, and agriculture, forestry, and fisheries. Ishiba had pinned his economic criticisms of his opponent around concerns that rural areas were being left behind, while urban ones were moving ahead.
In tandem with a series of domestic political squabbles and crises, the party leadership contest has put the success to date of Abenomics in the spotlight, even as the merits of continuing on an Abenomics-driven path or charting a new one have been under debate.
Abenomics in focus
The three Abenomics arrows are monetary easing, fiscal stimulus, and structural reforms. Under Abe, the Japanese central bank has pursued an aggressive strategy of monetary easing, which some critics have warned is not sustainable and has exacerbated the national debt, along with undertaking a series of fiscal spending measures aimed at injecting funds into the national economy.
However, the last of these arrows, structural reform, has been seen to be lagging, in relative terms. It covers topics ranging from agricultural market liberalisation to the negotiation of international trade accords, making it of particular relevance to the trade community.
To date, it has already involved Abe’s leadership role in support of the Trans-Pacific Partnership (TPP), now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as well as other sweeping trade accords such as the EU-Japan Economic Partnership Agreement (EPA). Both accords have been signed by the relevant partners and are at the domestic ratification stage, with officials saying in each instance that they hope these deals can enter into force next year.
Next year, Japan will also have the presidency of the G20, the coalition of major advanced and emerging economies, with the leaders’ summit for 2019 set to be held in Osaka.
Abe and his team will also be navigating the country’s trade relationship with the United States. While Abe and Trump met repeatedly since the latter took office, including on prospects for economic cooperation after the US’ exit from the TPP, the two sides have also a series of issues to resolve.
These include, for example, whether they will negotiate a bilateral trade accord; the US’ steel and aluminium tariffs on the vast bulk of its economic partners, including Japan; and the prospect of possible tariffs on imported automobiles and auto parts, depending on the results of a domestic investigation into the national security implications of global imports of those goods. The US and Japan are also part of a trilateral group, together with the EU, looking at possible topics for WTO reform, though whether this group will continue its momentum remains to be seen.
According to sources cited by Reuters, the two leaders will meet next week bilaterally, on the margins of the UN General Assembly in New York.
ICTSD reporting; “Japan’s Motegi, USTR Lighthizer likely to hold trade talks on September 21: source,” REUTERS, 12 September 2018; “Shinzo Abe has earned time to draw his third arrow,” FINANCIAL TIMES, 16 September 2018; “Japan PM Shinzo Abe, eyeing three more years in power as election looms, stresses stability,” THE STRAITS TIMES, 26 August 2018; “Abenomics and the Japanese Economy,” COUNCIL ON FOREIGN RELATIONS, 23 March 2018; “Abenomics is dead. Japan’s economy needs a more fundamental solution,” SOUTH CHINA MORNING POST, 22 June 2018.