Northeast Asia | Let’s applaud Japan’s newest economic debate
The prayers are working? Japan's Prime Minister Shinzo Abe and Yuriko Koike, his main rival in the October 22 election, attend a debate at the Japan National Press Club in Tokyo, Japan, October 8, 2017. Reuters/Kim Kyung-Hoon

Abe prays for help?

His election challenger, Yuriko Koike, is a maverick unafraid of shaking up the status quo in patriarchal Japan

October 10, 2017 10:33 AM (UTC+8)

For a skilled politician who ran circles around the opposition for five years, Shinzo Abe’s October 22 snap election is looking more and more like a rookie mistake.

The problem most pundits obsess over is the Theresa May-like vibe tripping up Abe’s Liberal Democratic Party. Abe’s misreading of the feistiness of the opposition is sure to cost him parliamentary seats.

He didn’t see popular Yuriko Koike, Tokyo’s first female governor, coming, Emmanuel Macron-style. Just like the French president, Koike suddenly formed a new party, used her charisma to attract members and upended politics in very short order.

Yet the real reason Abe is on the defensive – a failing economic-revival plan – was on graphic display Friday as Koike’s Party of Hope released its manifesto.

Tokyo Governor Yuriko Koike, head of Japan's Party of Hope, listens to a reporter's question next to a Japanese national flag during an interview with Reuters in Tokyo, Japan October 6, 2017. REUTERS/Issei Kato
Yuriko Koike, head of Japan’s Party of Hope, during an interview with Reuters in Tokyo, Japan October 6, 2017. Reuters/Issei Kato

If wages were rising, deflation were on the run, Tokyo were climbing the competitiveness tables, startup activity were booming, women were being empowered and foreign companies were rushing to invest in Japan, Koike wouldn’t dream of challenging the LDP.

Read: Yuriko Koike, Shinzo Abe’s nightmare

Resurrecting Japan’s innovative mojo, after all, was Abe’s raison d’être for winning the premiership back in 2012.

Koike’s manifesto talks of steps Abe has avoided, including taxes on large companies’ cash reserves to boost wages, scrapping nuclear power and halting tax increases on consumers.

The governor is plenty conservative herself, of course, supporting much of the same hawkish idolatry – revising the pacifist constitution and downplaying Japan’s wartime aggression – as Abe. But Abe’s mandate was, and still is, an economy whose challenges have grown on his watch.

Abe and friends are sure to be chastened on October 22. Unlike Abe, Koike is a maverick unafraid of shaking up the status quo in patriarchal Japan.

Abe and friends are sure to be chastened on October 22. Unlike Abe, Koike is a maverick unafraid of shaking up the status quo in patriarchal Japan.

She set off shockwaves by demanding a full accounting of why the 2020 Olympics costs are already double initial estimates. She’s taken on the powerful nuclear-power and tobacco lobbies and called Abenomics a dud.

Even if the LDP keeps power, the message will be loud and clear: get busy retooling the deflationary economy or get busy moving out of the premier’s office.

That’s likely to catalyze Abe to loosen labor markets, reduce red tape, encourage greater innovation and productivity, engineer a startup boom and empower the long-underutilized female workforce.

Nearly five years on, Abe’s government has relied on aggressive monetary easing, fiscal stimulus and modest deregulatory tweaks. The Koike threat means delaying reforms is no longer an option.

The focus must shift to where Japan wants to be 30 years from now, not lamenting where it was 30 years ago.

Abenomics shares something futile in common with Trumponomics: it seeks to recreate conditions that existed in, say, 1985.

Abenomics shares something futile in common with Trumponomics: it seeks to recreate conditions that existed in, say, 1985, but have lost relevance in an era of globalization, China, and a nascent automation revolution.

Donald Trump can threaten trade tariffs against Asia and soften the dollar. Trump can no more use the mercantilist tools of yesteryear to boost prosperity than Abe can devalue Japan’s way to renewed dynamism.

At the same time, Abe effectively outsourcing Japan’s foreign policy to a US president trolling North Korea toward conflict could backfire spectacularly.

Read: North Korea, the ultimate Black Swan

In 2012, Abe promised “three arrows,” using an old samurai metaphor: three arrows together are stronger than a single one. The initial two arrows were monetary and fiscal easing.

The third and most important one – structural reform – is still largely in the quiver. That’s why business confidence at 10-year highs and growth experiencing its longest run in 11 years isn’t boosting paychecks very much. The problem? Chieftains lack confidence in the outlook to share profits with workers.

Japan's Prime Minister Shinzo Abe, who is also ruling Liberal Democratic Party leader, attends an election campaign rally in Fukushima, Japan, October 10, 2017. REUTERS/Toru Hanai
Japan’s Prime Minister Shinzo Abe attends an election campaign rally in Fukushima, Japan, October 10, 2017. Reuters/Toru Hanai

Looking ahead, there’s ample reason to think Koike’s party would fare better, deploying the deregulatory arrow and hitting vital targets.

For one thing, Koike would likely aim her energy directly at raising Japan’s competitive game. Abe pulled a bait-and-switch from the economy to constitutional amendments.

If only he’d spent a fraction of the time and energy he did passing government secrets and security bills on deregulating the economy, wages and inflation might now be rising as planned. And Abe’s cronyism scandals might be getting less attention.

Judging from Koike’s 14 months running Tokyo, she’d probably be harder on Japan Inc. than Abe.

Judging from Koike’s 14 months running Tokyo, she’d probably be harder on Japan Inc. than Abe.

Odds are, she would pressure executives to diversity boardrooms and regain their innovative mojo. Koike’s talks more about inspiring entrepreneurship and unleashing a startup boom than LDP-like corporate welfare.

The same goes for increasing the number of women on corporate boards and in leadership. Japan lags Saudi Arabia in the number of women in politics.

Read: Japan deepens deflation by paying women less

Koike also wants to take on the powerful nuclear lobby, which has the same sway over Tokyo as the military-industrial complex does over Washington.

Even though the Japanese came to fear nuclear reactors after the 2011 Fukushima crisis, Abe protects vested nuclear interests. That ensures Japan will get a smaller piece of the renewable energy boom.

Koike, by contrast, says no industry holds greater promise than inventing and selling ways for China, India and Indonesia to avoid choking on fossil-fuel led growth – and that Japan should lead the charge.

It won’t be easy to wrestle power from Abe’s party, which has held power with just two short interruptions since 1955. The LDP has a near-lock on older, rural voters and fights dirty.

If Abe clings to power, it’s likely to be on diminished, lame-duck terms as Koike poaches LDP coalition partners and prepares to win the elections after October 22.

That’s shifting the buzz from Abenomics to “Yurinomics,” creating new momentum for long-delayed upgrades. Abe’s comeuppance could be a win for the Japanese people.

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