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Five-year-old Shinzo Abe
Pros and cons of the second government of the Prime Minister of Japan
Head of the Center for Japanese Studies of the Institute of Far Eastern Studies
On December 26 of last year, Japan marked the fifth anniversary of the re-coming to power of Prime Minister Shinzo Abe (the first time he held the post of the country's leader for only about a year in 2006-2007). Five years after Abe headed the state for the second time, the Japanese economy has noticeably strengthened, but still far from the revolutionary changes that he promised to carry out with the help of an economic course called "Abenomics" (for more details, see: https://www.eastrussia.ru/material/abenomika-na-marshe/). This is, in particular, how the Bloomberg agency experts assess the successes and failures of Shinzo Abe's five-year activity on the economic front in an article published by the Japan Times on December 27, 2017.
In their opinion, over the past five years, the growth rates of the Japanese economy have been insufficient to achieve Abe's goals. However, the economy expanded by 56 trillion yen ($ 494 billion) compared to December 2012. Incidentally, this growth alone is larger than the Belgian GDP. Currently, capital expenditures in the country continue to increase, heralding further growth.
The problem, however, is that Japan could have done better. Although its economy is currently experiencing the longest growth period since the mid-1990s, other industrialized countries are doing the best. Structural reforms promised by Abe have slowed, and Japan remains highly dependent on foreign demand for its products. Its export earnings are growing month by month, but household consumption is marking time.
Under Abe, according to the IMF, public debt stabilized at around 240% of GDP. Stabilization is an achievement in itself, but the debt burden is significantly heavier than in many other large economies, and, most importantly, the prospects for its reduction are currently dim. Even more worrisome is the fact that per capita debt continues to rise with Japan's declining population.
A notable success over the past five years has been the increase in the number of employed people, which increased rapidly by 2,7 million people, while the number of unemployed fell by 1,1 million. Much of this growth is due to women who returned to jobs due to the increase in the number of preschool institutions. However, the prime minister's original goal of increasing the proportion of women to 30% in managerial positions in all areas by 2020 is far from being realized. And the number of women members of parliament has even slightly decreased (to 10,1%), and now only two out of 20 ministers in the Abe government represent the fair sex.
Abenomics' stumbling block remains the lack of wage growth. As in many other countries, in Japan, the tense situation on the labor market does not translate into a significant increase in its pay. According to economists surveyed by Bloomberg, this year working Japanese can count on only 1% increase in their total income. However, much more growth is required for household spending to rise and firms' confidence in the stability of price increases to rise. Without these two components, the Bank of Japan will be forced to continue the struggle to achieve the inflation target of 2% with the help of monetary easing policy, although the Bank has practically ended deflation by now.
The weak growth in labor productivity, according to Yuki Masujima, the economist of Bloomberg, is the main failure of Abenomics. The expert notes that productivity is growing in the manufacturing industry. However, in the service sector, which employs 70% of the workforce, it fell by more than 10% between 2003 and 2016. The decline in labor productivity is a global trend and Abenomics' third arrow, consisting in structural reforms, was aimed at solving this problem in Japan. In his calculations, Masujima, on the one hand, highlights some areas of the Japanese economy's achievements, such as corporate governance and the surge in inbound tourism, and, on the other, points out such weaknesses as agriculture and innovation.
Donald Trump's decision to withdraw the United States from the Trans-Pacific Partnership, a 12-nation regional trading bloc, was a blow to Japan, but Abe has been persistent in keeping the deal going without the United States. It also entered into a trade agreement with Australia and completed negotiations with the European Union on an economic partnership agreement in December 2017.
In his second coming to power, Shinzo Abe closed the door to massive immigration to stem Japan's economic downturn, but also admitted large numbers of foreign workers into the country, now numbering more than a million.
Abe has a good chance to be re-elected for the third time as chairman of the ruling Liberal Democratic Party in September this year and, accordingly, remain in the prime minister's chair until 2021, making him the longest-serving prime minister in Japanese history. However, he will have to work hard to implement his economic program. On this occasion, the aforementioned Yuki Masujima put it this way: "This is a rare chance for the Japanese leader to really do something - to put the economy back on its feet." And he added, "Abe will definitely be judged by whether he will increase Japan's growth potential, which has a long way to go to cope with its debt and aging population."
Meanwhile, according to the Mainichi Shimbun newspaper in its January 12 issue, the fruits of Abenomics are not yet felt by ordinary Japanese. Only 6,5% of Japanese people recently surveyed by the Bank of Japan said they were beginning to feel financially comfortable. This is 0,8% less than such Japanese turned out to be according to the results of the previous survey in September 2017.
The results of a December 2017 survey of Japanese residents about their experience of daily life were released on January 11. They show that notable improvements in corporate earnings amid the economic recovery are not reflected in ordinary households. Only 12,9% of those surveyed said that their income has increased over the previous year. This is 0,9% less than in the last poll. At the same time, 41,5% answered that their expenses increased by 3% compared to September 2017. According to experts from the Bank of Japan, the deterioration of the respondents' feelings is caused by the growing expenses due to the increase in prices and the need to replace durable goods, while their incomes remain unchanged.
Big business assesses the economic situation in Japan in a completely different way. Three quarters of 121 large Japanese companies polled by the Mainichi Shimbun itself said that the current recovery in the economy will continue until at least October 2019, when the next increase in consumer tax is expected from the current 8% to 10%.
If that happens, the period of economic growth that began in September 2012 could surpass Japan's record-breaking economic recovery since the end of World War II. This period is 73 months from February 2002. However, many companies believe that the recovery will last even longer. Thus, 23% of companies surveyed believe that economic growth will continue until the summer of 2020, when the Olympic and Paralympic Games will be held in Tokyo.
At the same time, there is strong concern that the increase in the mentioned tax in October 2019 will slow down the development of the Japanese economy. However, many companies are also confident that investment in infrastructure for the 2020 Tokyo Olympics and massive consumption of foreign visitors to the games will strengthen Japan's economy.
Last September, the government announced that current economic growth had already surpassed Izanagi keiki, a period of particularly high economic development in Japan that began in November 1965 and lasted 57 months. Those were the years of accelerated economic development of Japan in the post-war period, called the Japanese "economic miracle".
Many companies noted that the current economic recovery in Japan was driven by the growth of exports due to the expansion of the global economy and the weaker yen, as well as improved employment and income conditions. In addition, some companies pointed to the already increased demand in connection with Olympic construction projects as the reason for the upward trend in the economy.
The main concerns, identified by 121 companies, were the upcoming consumer tax hike, labor shortages and weak consumer demand. Some large corporations said they were also worried about the impact of US fiscal policy on global financial markets and geopolitical risks associated, for example, with the situation around North Korea. Others highlighted the risks posed by a downward movement in the global economy due to growing policy uncertainty in countries located in Europe and North America, and a slowdown in emerging economies.
According to the author of these lines, the activation of economic and other ties between Japan and Russia can be considered a definite achievement of the economic, as well as the political, five-year plan of Abe. It began in May 2016, when the Japanese prime minister proposed a well-known eight-point economic cooperation plan to Russian President Vladimir Putin. And in December of the same year in Tokyo, the two leaders agreed on joint economic activities in the southern Kuriles, which Tokyo claims, considering them its "northern territories." In the past year, active contacts were carried out between the two countries with the aim of practical implementation of the agreement of their leaders. They themselves also once again addressed this topic, having met on the sidelines of the APEC summit in Vietnam in November 2017.
At the same time, the largest Japanese newspaper Yomiuri Shimbun, published on the last day of 2017, drew attention to the fact that in his New Year's greetings to the Japanese Prime Minister, the Russian President did not mention a word about the planned joint economic activities in the South Kuril Islands.
On our own behalf, we add that the word "economic" in the text of the aforementioned greeting posted on the website kremlin.ru is completely absent, except for the mention of the St. Petersburg International Economic Forum, at which Vladimir Putin is expecting Shinzo Abe in May of this year. Perhaps then the situation with the implementation of the economic agreements reached by them will become clear.