Thursday, November 20, 2014

Crib Sheet for Radio Interview on Upcoming Snap Election

Yesterday on China Radio International (yes, they still call on me), largely as scripted, except for a question about Okinawa, where I made the point (I think) that it was a local issue as far as the general election was concerned and that its outcome was largely drowned out by the uproar over the prospects of the latter, as I mentioned in this post.

1. Is it a surprise to you that Abe called for an early election? (There has been speculations that he might do so after newly released figures show Japan's economy slipped into recession in the third quarter)

It depends which me that you are talking to—a month ago? Two weeks ago? I think that the first whispers were a bluff to push the opposition away from the political financing scandals back to the business at hand in the Diet session. After all, the opposition always had more to fear from a snap election. Then, when the July-September GDP forecasts came out looking less than cheerful, I thought that Prime Minister Abe would postpone the tax hike whether he wanted to or not because it would be a good enough reason to call a snap election. But when the July-September GDP numbers came in negative, Mr. Abe had no choice but to postpone the tax hike anyway. But it came to the same thing. Snap election.

2. What can be achieved by calling an election two years ahead of schedule?

It resets the political clock in two ways, and they both help Mr. Abe serve out his two three-year terms as the head of the Liberal Democratic Party, therefore six years as prime minister, and do so from a position of strength—the economy willing, okay? Now, first, obviously, the LDP-Komeito coalition will prevail, and everyone elected to the lower house gets a four-year term instead of the two that remained. Second, old sins tend to be forgotten with every general election. In Japan, it’s called “misogi,” or “cleansing.” And the stench of the political financing scandals will be washed away.

3. Analysts say Abe is almost certain to win another majority in the lower house, and then he will have the mandate he needs to introduce unpopular policies such as restarting Japan's nuclear power generation plants. Do you agree? Will that strategy work?

The election has nothing to do with moving forward with those “unpopular” decisions. The nuclear power plants? They are already in the process of being restarted; politically, it’s up to the host municipalities and the host prefectural governors. The Sendai power plants will be up early next year, and it will barely register in the poll numbers. Collective self-defense? Komeito is the one who is holding up decisions on the details, and the election itself won’t make Komeito change its mind one way or the other. And so on. I don’t see a controversial issue on which the Abe administration will be helped or hurt by the outcome—unless, of course, the LDP-Komeito coalition loses so many seats that Mr. Abe is forced to resign. But that’s not going to happen.

4. At the news brief, Shinzo Abe also announced the delay of a planned increase in sales tax. How big of an impact will that have on Japan's plan to ease the country's public debt? How would the Japanese consumers respond to that? (The first increase taking place in April didn't boost income but instead Japanese consumers stopped spending)

I’m not an economist or a financial analyst, so you are putting the question to the wrong person. But since you asked…it’s 2 trillion yen for each percentage point, so an 18-month delay of a 2% hike means a 6 trillion yen loss of tax revenue. That’s a lot of money for me to lose even in the long-run, but not so much for the Japanese treasury. And remember, it was supposed to kick in almost a year from now, not next month. So the decision has little immediate effect on consumer behavior. Now, given the positive note on all kinds of employment data and a not-so-gloomy investment outlook, it’s hard to imagine October-December GDP going negative again, and the Abe administration will be ready with a supplemental budget for January-March 2015, which will also help out in April-June. But can Abenomics convince businesses to invest in Japanese capital and Japanese labor for the long-run? Can Abenomics instill enough confidence in consumers about Japan’s fiscal and demographic future to spend more? I think that Abenomics is headed in the right direction. However, a kick can be headed in the right direction, but it has to reach the end zone to count as a goal. I have serious worries about that when it comes to Abenomics. As a Japanese citizen, I hope that the security of an extra two years will push him to do more.

5. Seeing Japan's economic output shrinking for the second quarter in a row, questions about whether the "Abenomics" have failed are inevitably being raised. What's your evaluation?

I think that I just answered that question, in a way. But just to add. I don’t blame the technical recession on Abenomics. It’s not Mr. Abe’s fault that the LDP took part in a bipartisan agreement—two years ago—including a consumption tax hike. It’s not Mr. Abe’s fault that the Chinese economy is slowing down. And it’s only a little bit Mr. Abe’s fault that the Japanese multinationals have not altered their global investment decisions to have an impact yet—after all, there’s no assurance that a 110 yen-dollar exchange rate will prevail forever. But progress on the third arrow—and that’s going to make the real difference in the long-run—that has been slow. The Abe administration needs to put more of its time and political capital into the economic agenda after the “misogi,” or “cleansing,” and less into forays in the rest of the world, worthy though they may be. And unless it does that, there is a good chance that history will remember Abenomics as an opportunity lost.

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