for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up

Breakingviews - Review: Shinzo Abe’s elusive Japanese Dream

HONG KONG (Reuters Breakingviews) - In 1883 German philosopher Friedrich Nietzsche wrote of a character he called “the last man”. The opposite of his ideal “Ubermensch”, last men are so enervated and addicted to comfort, they lose their ability to dream and their will to compete. To Japanese conservatives, Nietzsche might have been describing Japan during the lost decades that followed the bursting of its financial bubble in the early 1990s: a pacifist, embarrassed, ageing irrelevance overshadowed by rising China. Until Shinzo Abe came along.

Japanese Prime Minister Shinzo Abe reacts during a news conference at the prime minister's official residence in Tokyo, Japan, August 28, 2020. Franck Robichon/Pool via REUTERS TPX IMAGES OF THE DAY - RC2XMI9RJFXZ

In “The Iconoclast: Shinzo Abe and the New Japan” Tobias Harris delivers an engaging review of the extraordinary career of Japan’s longest-serving prime minister. He was the heir to a conservative political dynasty, he dragged the country out of deflation, partially remilitarised it, and reconfigured the state in the process. Harris, an analyst at Teneo Intelligence who briefly served as private secretary to Japanese politician Keiichiro Asao, delivers a positive, nuanced assessment. However, readers less grounded in Japan’s political history might benefit from some background reading before wading in. (Who, exactly, were the “right-wing socialists”?)

Abe, who announced his retirement for health reasons in August, reinforced Tokyo’s position as Washington’s premier ally in Asia, and managed the relationship with a semi-hostile Donald Trump surprisingly well. When the White House abandoned the Trans-Pacific Partnership trade pact, Abe took the lead, ratifying a deal that lowered trade barriers between major economies in Asia and the Americas. He reinforced Japan’s position as a source of investment and aid to poorer neighbours as an alternative to China’s “Belt and Road” initiative.

Abe has handed the reins to Yoshihide Suga, a long-time ally who helped craft the combination of unorthodox monetary policy, fiscal stimulus and reform that came to be known as Abenomics. The new prime minister has also inherited plenty of problems. Covid-19 hammered Japanese economic activity and output is now no larger than it was when Abe took power in 2012. Having turned the central bank into a money-printing machine, pushed interest rates into negative territory, and inflated public debt to 240% of GDP, Japan once again faces the depressing risk of deflation.

STOP APOLOGISING

Abe did not start out as an economic reformer. His aim was to restore Japanese people’s pride, sorely battered by the country’s defeat in World War Two and the subsequent U.S. occupation. He wanted Japan to have the sort of global respect it enjoyed after the Meiji Restoration that restored imperial rule in the late 19th century, when the country industrialised, its military defeated Russian forces, and its woodcuts inspired French Impressionists. For Abe that goal meant less dwelling on past war crimes. It also meant legal revisions to allow Japanese troops to come to the aid of allies and support international peacekeeping operations. Both would cause diplomatic headaches.

Abe’s renaissance required a stronger state centred on a powerful prime minister who could drive painful economic and political changes to enable the attitude shift he wanted. He continued his predecessor Junichiro Koizumi’s push to end the system by which the Liberal Democratic Party – in power more or less since 1955 – diverted resources and investment to inefficient companies and regions in exchange for electoral support. He also increased the government’s influence over the Bank of Japan, which was reluctant to aggressively reflate prices. And he pushed through contentious reforms to corporate governance and labour markets.

Today the BOJ is pushing the limits of monetary orthodoxy, accumulating vast piles of domestic stocks and bonds while vainly trying to hit a 2% inflation target. It became, Harris says, “an arm of the Abe administration”. More women and immigrants have joined the workforce, and Japanese companies have grudgingly tried to improve returns to shareholders. But while the efforts revived inflation and investment for a time, progress proved frighteningly easy to reverse.

Abe also suffered setbacks. His attempts to get control of spiralling public debt through a consumption tax hike backfired. While corporate governance has improved in selected areas, executives remain hesitant to invest spare cash or hike wages. Years of negative interest rates have wrecked local banks, and the pandemic uncovered stubborn pockets of official inefficiency. Although inaction would have been worse, the jury remains out on Abenomics’ effectiveness.

Nor did Abe restore Japanese people’s interest in reproduction. The country remains at the wheezing edge of a demographic crisis that immigration and robotics can ameliorate but not solve. In “Extreme Economies”, Richard Davies pointed out that some towns in Japan are disappearing so quickly that one-fifth of local elections were uncontested due to a lack of candidates.

Harris believes that while Japanese people were pleased with the stability Abenomics delivered, they were less enthused by Abe’s push to unleash the military or revive patriotic fervour: “I don’t think Japanese people want to be enlisted in a great national mission.” The question is whether the state can enlist them in anything else. Other ageing societies in Asia and Europe face the same conundrum.

Abe’s legacy will serve Prime Minister Suga well as he pushes forward with technical reforms. Yet it’s hard to rally a nation around monetary easing and policy rationalisation. Japan may be the first developed country to discover the cost of economic malaise, but there are plenty of other last men.

On Twitter twitter.com/petesweeneypro

CONTEXT NEWS

- “The Iconoclast: Shinzo Abe and the New Japan”, by Tobias Harris, was published in August by Hurst.

- For previous columns by the author, Reuters customers can click on [SWEENEY/]

- SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS: bit.ly/BVsubscribe

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up