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In Japan Election, Abe Victory Not Quite a Referendum on Abenomics

The Japanese prime minister’s triumph in the snap election is more a sign of opposition weakness than an approval of his policies.

Whether the landslide victory in Sunday’s snap national election for Japanese Prime Minister Shinzo Abe’s majority, center-right Liberal Democratic Party (LDP) and its junior coalition partner, the New Komeito Party, represents popular approval of the political group’s policies is a hotly debated matter. For one thing, Abe’s popularity had been declining, tumbling from well over 70 percent after he took office to below 50 percent recently. Abenomics, Abe’s signature package of economic reforms, has left the world’s third-largest economy sputtering, despite aggressive easing by the Bank of Japan. On the domestic political front, many Japanese are uneasy about aspects of Abe’s right-leaning security moves, as well as his determination to revise Japan’s U.S.-influenced postwar pacifist constitution, along with other conservative and neonationalist aspects of his policies.

What the win undoubtedly did achieve, however, as Paul Sheard, a long-time Japan watcher and chief global economist at ratings agency Standard & Poor’s in New York, tells Institutional Investor, was to give Abe a “clear runway” between now and 2018 in which to pursue his policies.

The official reason given by the Abe camp for the special election was to delay a consumption tax hike. Abe had good reason to do so. An earlier hike in the tax from 5 percent to 8 percent in April had sent consumption in Japan plummeting, with industrial output and corporate capital investment tumbling in its wake. By the third quarter of the year, the Japanese economy had slid into recession. Legislation passed by the previous administration, controlled by the centrist Democratic Party of Japan (DPJ), gave the prime minister the power to stave off any such hikes. Yet Abe risked the wrath of fiscal conservatives within his own party as well as of international bodies such as the International Monetary Fund and the OECD. Among those least pleased, according to insiders, was Bank of Japan governor Haruhiko Kuroda, who provided cover for Abe to raise the consumption tax by launching a further massive round of quantitative and qualitative easing on October 31.

Ever the astute politician, Abe used the election as a referendum on his delaying tactics and, having won a new public mandate of sorts, he was able to turn his fire on political opponents, effectively silencing them, while being able to present the populist move as a measure of Japan’s democracy.

Abe, most likely advised by chief cabinet secretary Yoshihide Suga, according to Gerald Curtis, a Japan expert and professor of political science at Columbia University in New York, decided to call a snap election halfway through the government’s term, gambling that he could pull off a victory despite fading public support. Yet rather than a gamble, the snap election turned out to be a strategically calculated bluff after Abe realized his opponents had been dealt bad hands. The prime minister proved to be a superior poker player.

LDP’s opposition did indeed prove to be weak, and although the DPJ, the ruling coalition’s main opposition, managed to increase its seats from 62 to 73 in the 475-member lower house of parliament, this barely challenges Abe and his LDP/New Komeito coalition. Following Sunday’s election, the ruling government now has 325 seats and a two-thirds supermajority.

It was hardly an unmitigated triumph for Abe, however, with turnout slumping to a national election all-time low of 52.7 percent. As Columbia’s Curtis described it to the Foreign Correspondents’ Club of Japan the day after the election, the outcome was a “vote of no confidence in the opposition,” rather than a rejection of Abe’s administration. A chastened head of the DPJ, Banri Kaieda, immediately quit after losing his own seat, the first time that the incumbent president of a major political party has suffered such humiliation. It was a symbol of how far the DPJ has crashed since it swept the LDP from power in 2009, only to be ousted itself three years later.

Still, as Sheard argues, all this augurs well for Abenomics. With a huge new injection of liquidity into the Japanese system from the Bank of Japan and without a new tax hike to siphon money out of the economy, consumption and investment should be relatively untethered. Furthermore, to stimulate consumption, Abe is making determined efforts to get Japanese companies — primarily large exporters — that have profited greatly from the weaker yen to pay out those gains in the form of higher basic wages. Also likely to show up on Abe’s agenda will be a call for fresh fiscal stimulus, paid for by boosting corporate tax revenues on the back of any rise in profits. Short term, the economy should see some improvement, although structural reform has yet to take off.

If the economy pulls out of recession, the prime minister is widely expected to turn his attention back to what political analysts say is his first love: the need to revise the national constitution to make Japan, as Abe calls it, a more “normal country” able to exercise “collective self-defense.” Meanwhile, what concerns analysts like Curtis is not where Abenomics goes from here or the principle of constitutional change in Japan, but rather the nationalist rhetoric of some on Japan’s right, including several of Abe’s colleagues in the LDP, which could lead to conflicts with opponents and with neighbors. Still, for better or for worse, Abe has cemented his firm grip on political power in Japan.

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