As predicted, the Liberal Democratic Party (LDP)-Komeito coalition led by Prime Minister Shinzo Abe scored an easy victory in Japan's Lower House election on Sunday. For Abe it was a vital win on a shrewd, strategic gamble.
The LDP under Abe's leadership was judged the only viable option by an electorate craving political stability and economic prosperity. The main opposition party, the Democratic Party of Japan (DPJ), in disarray, remained badly out of favour with the electorate following its brief period in government from 2009 to 2012. Other opposition parties had promised new beginnings in 2012, but the significant support attracted then has largely dissipated over the past two years.
The objective of gaining time drove Abe to call this snap election. Now his coalition has won more than a two-thirds majority and Abe has achieved his goal of a further four clear years in power. He now has the extended mandate critical to his chances of breaking through on the far-reaching agenda he laid down over the past two years.
Abe knows Japan's economy is unlikely to recover lost momentum if he does not take strong and early action to address multiple challenges. Policies that are unpopular with large swathes of the electorate must be implemented. Japan needs sustained economic recovery if it is to hold its own against the challenge to national self-esteem posed by China's economic and strategic growth. China's increasingly powerful regional and global influence has impacted Japan deeply.
Abe's management of priorities will need astute judgment. Driven by the mood of some parts of the electorate and by China's rise, the temptation to pursue issues relating to national security will be great. Initially, however, it will be wise for Abe to focus on the economy.
During his first two years in power, Abe fired two of three 'arrows' of his economic reform program. These strategies were quickly termed Abenomics. Mixed outcomes resulted. The first arrow of Abenomics initiated massive quantitative easing to stimulate the economy; a second huge tranche of easing followed shortly before the 14 December election. The second arrow of Abenomics featured a proposed increase in the consumption tax to 10%, to be achieved in two stages. However, the impact of the first increase to 8% in April 2014 hit more severely than anticipated as Japan's economy fell into a technical recession in October 2014. Prime Minister Abe responded by announcing that implementation of the second increase of a further 2% would be delayed a further eighteen months to April 2017, and based his call for a snap election on that timeframe.
Prime Minister Abe's intention with his first arrow — to stimulate the economy with massive quantitative easing — was controversial and the merits much debated. On the second arrow, there is a consensus across the political divides that Japan's huge 240% ratio of debt to GDP needs all the help it can get from the extra revenue raised through the increased consumption tax.
The third arrow of Abenomics, which introduces more radical structural economic reform, is not only the most crucial but the most difficult. Abe made little progress on structural reform in his first two years, and this renewed mandate offers a 'do or die' chance.
The major reason for calling the snap election was the need to have sufficient opportunity in the political cycle to seriously address major structural reforms. If the LDP wants to achieve much greater economic efficiency and budget savings nationally, it must open up Japan's notoriously protected and subsidised agriculture sector. It must also address areas of the domestic economy, such as labour practices, that remain bound up in excessive red tape, dragging down productivity. This includes the need to take measures to facilitate entry of a much larger proportion of women into the workplace.
Prime Minister Abe knows such steps are necessary. The key question is whether he will now feel confident to tackle full-on the redoubtable agricultural lobby, for example. This powerful, respected, conservative and ageing lobby group is a cornerstone of the LDP's support base. Japan's keen national interest in concluding the long-delayed Trans Pacific Partnership (TPP) negotiations offers Abe the greatest opportunity to achieve genuine progress on agricultural reform. The extent to which Japan meets the requests for far-reaching agricultural liberalisation demanded by the US in the TPP negotiations will be the acid test of Abe's resolve to push forward on structural reform.
The signing of the Japan Australia Economic Partnership Agreement (JAEPA) in July saw Japan agree for the first time to reduce agricultural protection in some sectors. This was a curtain-raiser for what Abe will ultimately need to agree for the TPP negotiations to be successfully concluded.
Japan's economic health remains burdened by the enormous cost of recovery from the 2011 earthquake, tsunami and nuclear disasters. With each of its remaining 50 nuclear reactors still idle, Japan's balance of payments is hard hit by the need to import alternative energy sources. Australia's growing LNG industry has benefited greatly from this situation.
Re-starting the vital nuclear reactors, once they are declared safe by an exhaustive assessment process, is LDP policy and Abe clearly wants to implement that policy. While Japanese consumers and industrialists want lower power costs, they are divided about safety of nuclear energy in the wake of the Fukushima nuclear disaster. The decision to restart even the few nuclear reactors that have been assessed as safe remains a tough political decision. Abe may well decide he has the mandate to act but it will be controversial and potentially unpopular.
In a follow-up post, I will examine the security dimensions of Abe's election victory.