Sunday, December 16, 2012

Another Pre-election, Post-election Memo

1. Public reaction to the results

There is not as much enthusiasm as there was in 2005 or 2009, when the Liberal Democratic Party, or LDP, and the Democratic Party of Japan, or the DPJ, won similar landslide victories. Voting is noticeably lower this time around. An unbroken string of six one-year-and-out prime ministers has left the Japanese public disillusioned with the political process.

2. Abe says he'll use public spending to end 20 years of economic stagnation, is it going to work given Japan's already high level of debt?

Reputable economists are divided between those who believe that the Japanese economy needs a kick start to snap it out of its deflationary doldrums and those who fear the prospects of runaway inflation and soaring interest rates. I’m not even going to try to choose sides on this. But I’ll say this. The LDP and Abe’s talk around the infrastructure buildup and monetary policy coordination with the Bank of Japan have brought the yen down, pleasing exporters, so it’s arguably had immediate, positive repercussions for the Japanese economy. However, unless they come through on domestic reform, not just on social security and taxation but also on the employment environment and land use, and take Japan further into the growing global network of interlocking regional free trade agreements, you cannot expect the Japanese economy to overcome the long-term demographic challenges that it faces.

3. What influence can the upstart right-leaning Japan Restoration Party and the smaller ally the New Komeito Party have on the new government?

Komeito will continue to influence the policy agenda regardless of the outcome of individual elections because there’s always the next election, when the LDP will need the 10 percent or so of the popular vote that Komeito supporters can reliably deliver for LDP candidates in the single-member districts. The Japan Restoration Party will vote with the LDP-Komeito coalition where it suits its own policy agenda. It may have opportunities to provide a lower house supermajority to override opposition in the upper house, getting some concessions in return. But I doubt that they will join a formal coalition, since that is the quickest way to oblivion for a relatively small party that has not established a clear identity and a secure support base.

4. During his campaign, Abe took a strong stand against China in the ongoing territorial dispute in the East China Sea, how is that stance going to be reflected in his policies?

Do not expect the Abe administration to establish a permanent public presence on the Senkaku Islands any time soon, if that’s what people are worried about. Japanese businesses don’t want that, and Washington will not welcome such action. However, the Chinese authorities, deliberately or not, misinterpreted the Noda administration’s actions and the Noda administration grossly underestimated the Chinese response. The outcome has been a significant escalation of Chinese activities around the islands. If that continues, the Abe administration will have no choice but to make some kind of response, probably by beefing up patrolling activities in the vicinity, and more ships and planes to do so over the coming years. So the potential for an unplanned incident increase. But I suppose that it would happen under any administration. My understanding is that the LDP has broader, deeper ties with the Chinese political elite than the DPJ does, particularly after Ichiro Ozawa defected from the DPJ. Let’s hope that it can put those connections to better use in backdoor and second-track diplomacy to contain any spillover if something of the sort occurs.

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