Such is the contrast between Shinzo Abe’s lacklustre first term as prime minister and his supercharged, hyperactive performance this time round that the Japanese have taken to calling him “Abe 2.0”. Since he made his political comeback almost two years ago, Abe has been on a mission to erase all memory of his first, miserable 12-month stint, which ended in 2007. His determination to make amends has lent his premiership an almost born-again zeal, which supporters find invigorating and opponents frightening.
Economically, he has launched the most ambitious plan to revive the economy since it fell into stagnation two decades ago. Diplomatically, he has been more active than any prime minister since Yasuhiro Nakasone in the 1980s, tramping around the region and the world. On defence, he has made the most concerted effort in decades to unshackle Japan from constitutional restraint and restore its position as a “normal nation” with a normal military.
The past two weeks have been frantic even by Abe’s standards. First, Haruhiko Kuroda, Abe’s radical appointee as central bank governor, wrongfooted markets by launching another round of massive monetary easing in the very week that the US Federal Reserve was going the other way. Just as the Bank of Japan said it was going to buy more government bonds, Japan’s vast Government Pension Investment Fund said it would more than double its allocation to domestic equities. The co-ordinated policies had an immediate impact. Japanese equities have risen 7 per cent and the yen fallen more than 5 per cent to 115 yen (Dh3.65) against the dollar. Bond markets, in defiance of the Cassandras, have remained stable.
Second, last week, Abe finally secured a meeting with Xi Jinping, the Chinese President, whose first two years in office have been even more muscular than Abe’s. There is no love lost between the two. During their much-photographed handshake, they held each other’s digits with all the warmth they might reserve for a dead fish. Still, the encounter marked a pause to dangerously deteriorating relations. China’s press portrayed Abe as begging for an audience, while Xi as magnanimously granting the little pipsqueak his wish. Yet, Abe can also credibly claim the meeting took place without him making substantive concessions.
Third, and in a sense most surprising, there is suddenly talk of Abe calling a snap election. One possibility is that he may use the vote as an opportunity to back out of a further planned rise in the sales tax inherited from the previous government. Last week, he held a joint meeting with Koichi Hamada, “the godfather of Abenomics”, and Paul Krugman, the print-till-you-drop US economist, both of whom have urged him to ditch the tax rise in the interest of banishing deflation once and for all. An election could be one way of achieving that policy U-turn, though Abe may still be genuinely undecided about whether to put up the tax or not. Another potential benefit will be to bolster his sagging — if still respectable — support rate by challenging voters to back him or sack him. A revved-up Abe will milk a new mandate for all it is worth.
So where is all this leading to? Economically, Japan has the best chance in a generation to end deflation, the root cause of many — if by no means all — of its problems. Getting to 2 per cent inflation is a bit like Macbeth’s ambition to be king. Abe is so steeped in quantitative and qualitative easing — or “blood” as Shakespeare called it — that it will be as tedious to return as to go o’er. Hamada, the Yale professor who persuaded Abe to take the plunge, gives the three arrows of monetary easing, fiscal flexibility and structural reform respective marks of ‘A’, ‘B’ and ‘E’, which conveniently spell Abe’s name. If Japan can get to sustainable, moderate inflation, half the battle will be won. Structural reform aimed at raising the potential growth rate could follow.
When it comes to Abe’s aim of turning Japan into a “normal” nation, the results are likely to be less clear-cut. Countries such as the Philippines, Vietnam and India welcome a stronger Japan, which they see as a counterweight to China. Beijing, of course, does not see it that way, which is why it has branded Abe as a dangerous militarist who may invade Asia all over again given half the chance.
Abe’s biggest obstacle, however, is domestic. Most voters remain cautious about his ambition to revise the constitution, particularly when it comes to jettisoning the pacifist Article nine. Any such step will need to be ratified by referendum — a hurdle it will almost certainly fail. However determined ‘Abe 2.0’ is, on that front, he may have to yield.
— Financial Times
