The Upper House Election: Representing on China Radio International

Here I am on China Radio International

.

I got a message from a political scientist, who will go unnamed for now since he is at a crossroads in his career with regard to China and I don’t want to spook his chances. To quote:

“It seemed to go well. I was surprised that the Chinese analyst agreed with you so often, particularly on the idea of Japan's right to have a conventional military.”

To the point, as ever, this guy. My response, edited slightly:

“There was nowhere near enough time at the event…to cover all the points, of course, but even so, I felt that between the time that the coordinator dashed off the questions and sent them to us and the event, the minders of the show decided to tone down the hostile elements. I told a government contact about my impression, but was informed that the Chinese authorities have actually been giving Japanese counterparts the cold shoulder lately because they felt that the Abe government had been unre[s]ponsive to (what were in their view) Chinese concessions on the Senkaku Islands. I think there are a couple of ways to explain what seems at first glance to be a contradiction.”

That exchange ended there. I’ll be happy to give anyone my explanations, but there’s a price. In the meantime, the questions, and my answers, in preparation for the event below. Is it my imagination, or was there a significant change between the preparation and the event? And why, if so?

PART 1 (10:05-10:20)- The Political Forces of Japan

OVERVIEW (Brief Opening Thoughts)

How do you see the senate election result? Japanese Prime Minister Shinzo Abe has won control of both houses of parliament, giving his Liberal Democratic Party-led coalition the strongest grip on power since 2007. So what does it mean for Japan? Does it mean the LDP or Abe can do what he wants without any worries from party politics?

It means that Prime Minister Abe has a three-year window in which he can be pretty much sure that he can secure any legislation short of constitutional amendments that are necessary for any policy measures that have the support of the ruling coalition parties. Party politics and Komeito remain as constraints, but Mr. Abe’s hand has been strengthened.

How do you evaluate different political forces, the DPJ, LDP and New Komeito’s performance during the senate election?

The DPJ did about as well or as poorly as could be expected, given the circumstances. Three years, three prime ministers, a divided party leadership, plus the fallout from the Fukushima disaster. It did not have a coherent leadership and a coherent policy platform, which probably hurt. The LDP ran a conservative campaign, avoided overreach. It didn’t try to win too many seats, and did everything it could to keep Komeito onside. On policy, it did its best to avoid commitments that could alienate significant constituents.

Why did the DPJ and New Komeito get much more support now?

To quote Yoshihide Suga, the Chief Cabinet Secretary, in anticipation of the election, “the economy, economy, economy, economy.” The stock market, export value, consumption, summer bonuses, GDP: visible economic improvements, and they are connected in the public mind with Abenomics. This is reflected and magnified by the media, and the voters were responding.

What is the turnout?

-Low = voter apathy. Does that single endorsement and still give Abe a clear mandate to pursue his pet interests and agenda?

It was low, but the LDP received a much bigger number of votes than it did in the 2010 upper house election, when the turnout was much higher. So yes, I think that Mr. Abe’s claim to a popular mandate is justified. But it is still constrained by the presence of the New Komeito, vested interests, and is subject to the effect of major changes in the economic circumstances.

Some have described this as a mandate on Abe and a chance for redemption, having led them to defeat at the 2009 vote. How is he regarded as a personality and as a politician by the voters?

Mr. Abe is still something of a cypher to the general public. He’s not a particularly effective public speaker and rarely says anything memorable. But his mistakes are few and he’s quick to backtrack when he makes them. And nothing succeeds like success. 2007 is forgiven—forgotten, even. If the Japanese economy stays on track over the next three years, he’ll gain more confidence, loosen up a little, and the public will come to better appreciate his fundamentally decent if unspectacular personality.

The LDP was pushed from power just three years ago, what’s its political influence now and how did it regain power and then enhance it in such a spectacular way? Is there something different about LDP policies this time around or are they basically the same party?

The LDP didn’t regain power, it had power dropped into its laps. Remember, in last year’s lower house landslide victory, the LDP’s share of the proportional vote, when it couldn’t rely on the Sokagakkai vote, was almost as low as it was when it was absolutely slaughtered by the DPJ in the 2009 election. I don’t think that the LDP has changed that much. Familiar faces, familiar factions, familiar stakeholders. On policy, take away the monetary policy, which has been highly effective so far, and look beyond the tree to the forest and there’s not much that we didn’t see before the last time around. And Mr. Abe owns that monetary policy, not the LDP. I do hope that the LDP—Mr. Abe too for that matter—will surprise me and push a truly transformative agenda for the Abe administration’s third arrow.

How did the opposition Democratic Party of Japan get ousted from power so easily in the 2012 elections after a landslide victory in 2009?

-the result of introducing the consumption tax to repay the Japan public debt, the DPJ lost around 75% of its pre-election seats

The DPJ did not have a coherent, consistent, and executable policy agenda. It did not have a coherent, consistent, and executable policy making process. Over time, it may have been able to bring the neoliberals, big-government welfare-state proponents, labor-unions, and old-school special-interest politicos together as an effective ruling party. But the first prime minister frittered away most of his political capital on a policy non-starter, the second one failed to come across as leader in Japan’s biggest post-WW II crisis, and schism took out a sizeable chunk of bedrock support. Remember, the consumption tax hike was more LDP than anything else.

The LDP may be commanding a healthy majority in both Houses of Parliament but is it fair to say that they, too, have been shedding voters since the 1990s, whilst DPJ have only momentarily offered voters an alternative on an irregular basis？

That’s not unique to Japan if you look at the European democracies. But take away the Communist and Social Democrat vote and the rest of the political parties are essentially fighting over more or less the same set of voters. And the New Komeito is always going to take its cut, 11 percentage points and up. Now, the LDP doesn’t look so bad as the numbers initially suggested.

NEW KOMEITO

The New Keomeito party is the coalition partner to the LDP with over seats, what does this represent to the voters?

It is widely believed that more or less the same set of people votes for the New Komeito year in, year out, and the cohabitation has been in place since 1999 and withstood the test of three years in opposition. That is all there is to it. Now a few people may be voting for New Komeito for its moderating effect on the LDP, but their numbers are surely very small.

PART 2 (10:20-10:32)- the Message of the Election

MESSAGE OF THE ELECTION

What is the central message of this election?  Are the voters most concerned about economics, territorial tensions, or else?

The economy. Not nuclear power plants, certainly not territorial issues. And with Abenomics maintaining momentum through election day, the politically divided opposition parties didn’t have a chance.

Abenomics

ABENOMICS

Abe says he aims to lift the economy out of recession. He says he will do this through hyper easing policy and increased government spending.  Generally how would you describe Abenomics and can work?

If there’s are economists on the panel, I’ll be happy to defer to them. That said, the first arrow was a huge political bet that an inflation target backed by strong quantitative easing by the central bank would change inflationary expectations, setting a virtuous circle in motion. So far, it has worked. The biggest know uncertainty is the 2014 consumption tax hike. If that takes the wind out of the economic sails, then Abenomics will be in trouble. The second arrow is a flexible fiscal policy. Frankly, I’m skeptical about this one. Spending 200 trillion yen over ten years to make Japan more disaster resistant? Any 10-year spending plan with lots and lots of zeros behind a round number even before we’ve figured out what the real needs makes no sense to me. I’d be much happier if they replaced this with a 10-year fiscal plan for achieving primary balance. The third arrow is essentially structural reform. But will the Abe administration commit itself to serious agrarian reform? Labor and social safety net? Corporate taxation? Education? Frankly, I’ll be happy if we get even half a loaf. But maybe my standards are unrealistic from a political of view. I’ll be more than happy if the Abe administration proves me wrong.

The LDP leader Shinzo Abe favors forcing the central bank to do whatever it takes to meet an inflation target of 3 percent. He is calling for “hyper easing”, strong intervention in the currency market and increased spending on public works, is this the right economic plan for Japan?

The risks of hyperinflation from quantitative coupled with an inflation target, are very low, economists tell me, while the potential payoff appears to be pretty big. Currently, it seems to be working. And some of its critics are moving the goalpost. But remember, the Abe administration is not intervening in the currency market at all. Intervention is what South Korea did to keep the Won down, which in turn was nothing compared to the near-total control that the Chinese authorities have over the Renminbi rate. As for public works, Spending 200 trillion yen over ten years to make Japan more disaster resistant? Any 10-year spending plan with lots and lots of zeros behind a round number even before we’ve figured out what the real needs makes no sense to me. I’d be much happier if they replaced this with a 10-year fiscal plan for achieving primary balance.

Will the rest of the world standby while Japan actively weakens its currency?

When you run a clean float like Japan, or the United States, an easy-money monetary policy will push the value of that currency down, other things being equal. The yen appears to have stabilized around the 100 mark; the rest of the world appears willing, or at least resign, to live with that. The idea, I suppose, is that a robust Japanese economy makes up for whatever negative effects there are on their respective national economies. Besides, right now, it appears to be the Fed pulling back from its QE that’s spooking the emerging economies.

How significant is it that when Abe came into office at the end of 2012, the Nikkei index averaged 10 230 but in recent months, it’s come gone to an average of around 14 000. The B

It’s a measure of the confidence that market players have in the near-future prospects of the Japanese economy and more specifically Japanese businesses. But it does have a real effect on the economy, since it appears to be connected to a rise in consumption and housing sales and it does make it easier to raise money through the equity market.

-The Bank of Japan’s Regional Economic Report for 4th July upgraded its economic assessment for 8 of the country’s 9 prefectures.

It’s good to hear that the brighter outlook is increasingly shared in the provinces.

What about unemployment and wages – have they changed greatly since Abe returned to power? Likewise, interest rates on home loan have risen

That’s a good question. Unemployment figures are improving, but that has been going on fairly consistently since 2009. Wage are not going up yet, but summer bonuses are. So it remains to be seen whether the virtuous circle: consumption-investment-hiring… is really under way.

THE ECONOMY

Abe says the economy is his top priority yet some of the economic harm has come from a trade dispute with china amidst territorial disputes, and the nuclear power energy is causing many problems in getting the nation’s power needs sorted out.  Can he just focus on economics or will he have to solve these other problems first?

First, the Senkaku issue certainly does have a negative effect on the China business of Japanese retailers and conspicuous brand-name manufacturers. But the impact on the Japanese economy is limited to the extent that these businesses source within China. There appear to be other inconveniences, but they rarely appear to be something that businesses can’t handle on their own. Second, the nuclear power plant stoppage is in essence a roughly 0.7% tax on GDP, or tribute if you will, paid to natural gas exporting countries. As for the matter of electricity supply, each regional monopoly greeted the summer months with a margin of capacity over expected peak demand. So it’s not as acute a problem as you might imagine. We would be more worried if we growing at a 7.5% clip like the Chinese economy.

Japan has the largest debt of any sovereign nation, can it really afford to spend its way out of the current crisis?

Easy-money monetary policy is not about “spending its way out of [any] current crisis.” It’s about kicking the Japanese economy out of a chronic deflationary equilibrium. But I am skeptical about fiscal policy, if that’s what you’re talking about. Spending 200 trillion yen over ten years to make Japan more disaster resistant? Any 10-year spending plan with lots and lots of zeros behind a round number even before we’ve figured out what the real needs makes no sense to me. I’d be much happier if they replaced this with a 10-year fiscal plan for achieving primary balance.

HYPER-EASING

injecting money into the economy by printing money instead of borrowing it.  Can this policy truly inject stimulus into the economy?

Hyper-easing is not about injecting stimulus. To the extent that it lowers the effective interest rate, it makes it easier for the government to borrow too, but that’s not the point.

Abe’s goal is to fight deflation, has this been a serious issue for the nation? Will this finally turn that problem around?

Deflation has essentially put a zero-nominal interest floor under the real interest rate. Most mainstream economists believe that this affects the real economy negatively and who am I to argue with them? Will the inflation target be achieved on a sustainable basis? I don’t do economic forecasts and real economists are divided on that question.

THE YEN

Is the Hyper easing policy about injecting money into the Japanese economy or boosting exports by devaluing the Yen?

It’s about achieving an inflation target. A weaker yen is the low-hanging fruit, the immediate benefit accruing to exporting businesses. Mr. Abe was obviously aware of this when he launched his Abenomics program.

Abe has promised bold stimulus to restart growth and curb deflation. He has also called for a weaker yen to bolster exports. Since these calls the yen has fallen by 16% against the dollar and 19% against the euro over the past 4 months. Does this mean his policies are working? Are his policies overly focused on currency weakening rather than actual stimulus?

It’s about achieving an inflation target. A weaker yen is the low-hanging fruit, the immediate benefit accruing to exporting businesses. Mr. Abe was obviously aware of this when he launched his Abenomics program. But it’s not something that you mention in polite company , and he rarely if ever has alluded to the effect since he was criticized for doing so early on.

STIMULUS

The Japanese cabinet has approved a stimulus package of more than 20 trillion yen. 10 trillion is earmarked for infrastructure spending over the next 15 months, what type of infrastructure does Japan need at the moment?

I should look into this issue more closely, but I haven’t, so I’ll refrain from passing judgment. However, there is a genuine, massive backload of aging infrastructure built in the go-go years that require repair or replacement. But some of them may no longer been socioeconomically viable. I’d like to see them sorted out for prioritization before putting numbers on the price tags.

Abe’s party has a long history of pork barrel and wasteful infrastructure spending, is he promising more of the same or will it be different? Past efforts to pour millions into concrete and steel have had limited impact, will this new spending go to other places?

I should look into this issue more closely, but I haven’t, so I’ll refrain from passing judgment.

Half of the infrastructure spending will come from national debt, can the country truly afford to borrow more?

I am not a fiscal expert. So far, so good. But yes, there must be a limit as a matter of logic. In the long run, we do have to more or less balance revenue and expenditures and we do have an unfavorable demographics.

GLOBAL IMPACTS

Will Japan’s easing lead to foreign capital flood into the emerging markets like Brazil? If so, how should emerging markets avoid inflation caused by it? Limited capital controls may be a sensible short-term defense against destabilizing inflows of hot money, should it be implemented by emerging countries?

I’m not so sure, but isn’t that what countries like Brazil and India want, now that the US Fed talk about moving away from QE is drawing money out of those emerging economies?

CHINA IMPACT

Should China have such concern? How will a weaker yen affect China? Will it lead to escalated trade frictions and increase China's inflationary pressure? Can China take any counter measures?

Why should China worry? Our businesses don’t compete much in third countries, and Chinese exports to Japan are still significantly cheaper than Japanese products in broadly similar product categories.

How will Japan’s devaluation of yen impact China’s exports and imports? It seems to hurt Germany since they have the same products mix for exports, but does China have the same export products with Japan?

China shouldn’t worry. Japanese businesses don’t compete much in third countries, and Chinese exports to Japan are still significantly cheaper than Japanese products in broadly similar product categories.

Does this affect the free trade talks either individually with both China and South Korea, as well as the three-way trade agreement that China craves but not Japan or South Korea?

Not at all. China has a firm grip on its currency that no country on a float has. As for the trilateral FTA, I think both Japan and China want this to happen. The South Korea government should be a little more ambivalent, since it has to get it ratified by its parliament. Also, South Korea sees Japan as a competitor.

Will the devaluation of yen lead to the relative appreciation of Chinese currency RMB? Will the Chinese government allow the RMB to appreciate in response?

Yes, by definition, in terms of the effective exchange rate. But the Chinese authorities measures the exchange rate against a currency basket, of which the yen is a significant but by no means dominant part, no?

Part 3 Right-wing orientation

How much has Abe’s personal views on Japanese history and past actions been a factor in being overwhelmingly endorsed by voters in both last year’s general election as well as the Upper House election?

It has had little effect on voter behavior. It didn’t help him in 2007 and it didn’t hurt him in 2013.

In Japan, fresh calls for constitutional amendment from various political parties have got louder. Is it easy now for him to start procedure of constitutional amendment?

-Abe has described his lifework to be revising Art 9.

-Article 9 of the Constitution renounces war and prohibits the possession of military forces.

-Abe first made the argument to amend it back in 2006-07 when he was Prime Minister.

-Abe wants to revise Art. 9 to allow Japan to possess a military that can defend itself as well as participating in the defense of its allies.

-He is proposing to revise Art 96 first which sets the provisions for constitutional amendments, that is to lower the threshold needed in the Diet in order to get the bill passed in order to amend Art 9. A referendum will then follow.

-Abe has been careful in not pursuing this too aggressively.

It has become somewhat easier, to the extent that parties that want to amend Article 9 in a way that gives the government more leeway in using the military for collective defense

How enthusiastic were voters about the Constitutional amendment in casting their votes at the ballot box?

-A vast majority of voters favour the pacifist Art. 9 for its principles and ideals but do agree that a self-defense force as a necessary option.

It was not a significant issue in this election—any election in living memory, actually—since the Communists and the Social Democrats are the only political parties that take up the other side of the argument but their political presence has been marginal for quite some time. The New Komeito would probably favor keeping Article 9 as is, but should go along with recognition of the Self-Defense Force’s military status.

How true is it that many voters plumped for the LDP not because of their stance on revising the Constitution but more on economics and a lack of political alternatives?

100% true. I’m pretty sure that few people voted for the LDP because of its constitutional views.

Does the LDP’s solid majority mean the amendment to Art 96 mean a change to Art 9 looks more likely？

(If the JRP, YP and New Komeito give pro-amendment forces a 2/3 majority) Its chances have improved. It still needs to bring the JRP, YP, and New Komeito along but the DPJ by itself can no longer stop the issue from going to a national referendum.

((If the JRP, YP and New Komeito do not give pro-amendment forces a 2/3 majority) No. It still needs to carry some DPJ votes, and the DPJ is sure to use this leverage to the best of its political advantage.

How does affect the opposition DPJ? Commentators say this is likely to split the already-weakened party down the middle?

I don’t agree. At the end of the day, the DPJ leadership can allow its Diet members to vote their conscience on the matter and call on all the other parties to do likewise.

How dangerous will it be for regional countries both China and South Korea? Earlier this year, Japanese officials made irresponsible remarks about the comfort women or rather sexual slavery issue, which arouse drastic response from South Korea and China.

-South Korean president Park Guen-Hye has called on Japan to follow her vision for the region on a ‘correct understanding of history’, a clear reference to Japanese past aggression and atrocities.

No need for China or South Korea to worry at all unless it decides to launch a cruise missile at a US vessel during a Japan-US joint military exercise. The mayor of Osaka made some ill-advised comments about sex, the military, and women, comments that were almost uniformly condemned by the Japanese media. He seemed to forget that there was a very large number of Japanese comfort women as well. But that, of course, has nothing to do about slf-defense.

Does Abe risk anatagonising its nearest neighbours – both with new leadership in place – so early in their time in office? And how significant is it that President Park chose China as her second official stop ahead of Japan when in the past, it would’ve been the other way round?

By seeking to amend the Constitution? Risk what? And President Park has her own political needs and wants, and it should have some economic benefits, as an amenable South Korea will make the Chinese public that much more receptive to South Korean goods and services. But it will not bring North-South unification any closer, if that’s South Korea’s ultimate objective.

Japan may also further its military buildup and will probably go beyond the exclusively defense-oriented strategy. Will Japan’s self-defense force be transferred to a normal military? How will this impact the regional stability? How will China and South Korea respond to it?

The exclusively defense-oriented strategy will be breached only, if ever, as part of UN-sanctioned operations. China has a permanent seat on the UN Security Council, so China doesn’t have to worry about that. South Korea is a formal US ally, so it’s protected as well. Note also that the Japanese budgetary constraints precludes the kind of the buildup that China has been engaging in for many, many years.

Media reports say Japan may nationalise any unclaimed remote islands in its waters in a bid to bolster its territorial claims. How far will Japan go on this road? Can the neighbouring countries accept its move like this?

You’ve got this completely wrong. You’re confusing sovereignty with ownership, which is understandable from an authoritarian, socialist perspective. Any islands in Japan’s territorial waters are Japanese territory and vice versa; there’s no question about that. The problem is that many of those islands may have no owners. In that case, the state has ownership by default. The government is going to confirm the ownership, and assume control where it finds that it does have ownership. I don’t see why that could alarm anyone.

In recent years, Japan has become more assertive in dealing territorial disputes with its neighbors. Will it continue on this path?

No it hasn’t. The Japanese government has not taken the case against South Korea or Russia to the International Court of Justice. It tried to maintain the status quo on the Senkaku Islands and all it got for its troubles was a ferocious, totally unexpected backlash from the Chinese authorities, with Chinese government ships continuing to dip in and out of the Senkaku waters. It also knows happened in the South China Sea to the Philippines and Vietnam. Maybe China sees its actions as just one step in its manifest destiny. But I do think that the Chinese should be aware of how it’s projecting itself with regard to its neighbors.

Japan is aiming at a leading role in East Asia affairs. If it continues to be more right-wing, will it disturb the regional stability?

I would argue that it is China’s actions, if anyone’s that is disturbing regional stability. China is no longer acting as a status quo power. Ask the Vietnamese. Ask the Filipinos. And China’s relationship with India remains ambiguous, never mind the Shanghai Cooperation Organization.

What’s the US stance on the Japan’s continuously right-wing orientation? Will it have to rein in Japanese rhetoric?

What right-wing orientation? The US will surely be happy with the kind of constitutional amendment that the LDP, New Komeito and the able and will among the opposition parties. They cannot, need not, “rein in Japanese rhetoric” because Japan is a democracy and any truly off-the-wall rhetoric—as opposed to statements that are merely not to the liking of the Chinese or South Korean authorities—is quickly reeled back by the rhetorician or the rhetorician is the one to suffer the consequences.

PART 4 (10:32-10:47)- Challenges

NUCLEAR ENERGY

The Nuclear energy issue has been highly contentious with many critical of the outgoing DPJ for its relationship with the industry.  The LDP is a well known advocate for nuclear energy, are people really ready to turn the reactors back on? Do they feel comfortable with the decision?

-Abe has made clear that he intends to turn the reactors back on.

-50% of those polled say they are against nuclear energy

-30% favour nuclear energy.

-Opposition parties generally against nuclear energy.

Given how toxic an issue nuclear energy has been, in the long run, the LDP or any political party has to move away from Japan’s dependence upon nuclear power?

That’s not the way to talk about the issue. Instead, ask

1)    Will the reactors that pass the safety test be restarted? The answer is yes.

2)    Will the reactors that do not pass the safety test be restarted? The answer is no.

3)    Will the reactors that are currently under construction and meet safety standards be commissioned? The answer is very likely yes.

4)    Will any more new reactors be built? Possibly, as old reactors are decommissioned. But don’t bet on it. Electric utilities may think that it’s not worth the trouble.

Japan has put the Japan Restoration party third in polls, will they stand by if the LDP considers negotiating or changing its stance on the Islands in dispute with China?

The JRP has appeared amenable to admitting the existence of a territorial dispute. But a doubt that any Japanese political party will make such a concession unless the Chinese authorities agree to call off the government ships from the Senkaku Islands and keep Chinese fishing boats away from the neighborhood.

Can Japan afford not to put relations back together with China considering the economic harm of the last few month stemming from their trade and regional disputes?

Can Japan afford to? After all, it tried to contain the situation and all it got for its troubles was a ferocious response from the Chinese government and the Chinese public.

US RELATIONS

Abe says strengthening the US relationship is important, will he reverse decisions about the military base on Okinawa?  What other areas will he change to improve the relationship with the US?

The Abe administration has

How do Japanese voters see closer China-US?

They will not worry as long as the Japan-US mutual security treaty is in place. On the economic front, the Japanese voters, to the extent that they think about the matter, should be happy with a closer US-China relationship. And nothing would make me happy than China seeking membership in the Trans-Pacific Partnership with the US in the lead.

TPP

Will Japan join the TPP?  Will that improve relations with the US?

Both of the main parties are for the TPP. Japan depends on trade so voters approves of this EXCEPT for farmers who might lose out to a lack of trade barriers.

The answer is yes. But only marginally, since the relationship is already an excellent one.

REGIONAL TIES

Japan’s presence in the region’s key multilateral institutions such as APEC, ASEAN and the East Asia Summit is another vehicle that should continue to drive Tokyo’s foreign policy. But besides trade, Will Japan enhance its political and security relationships with natural allies in the region such as India, Australia, Mongolia, Thailand?

That certainly is the idea. Japan shares, to varying degrees, values and economic and security intrests with these countries. But remember, these countries have their own national interests in mind, and many of those interest are enhanced by a healthy and constructive relationship with China. Come to think of it, the same thing can be said for Japan.

The Philippines has signaled support for a stronger Japanese military. Will Abe focus on building a stronger military?  Will China stand by if this happens?

Yes, but let’s put this into some perspective. The Chinese military budget has been growing for several decades, while the Abe administration’s first defense budget grew 1% this year. What does that tell you? Frankly, I don’t think that the PLA worries nearly as much about Japan’s self-defense forces as it worries about the US military’s presence in the neighborhood.