Leading world economy despite major problems
Despite major problems such as a rapidly aging population and an alarmingly high level of public debt, Japan remains one of the world’s leading economies. Its rate of per capita economic growth is in line with that in the United States or the European Union. Japan provides a high standard of living and safe living conditions for more than 120 million people. Notably, however, disposable incomes have risen little in recent years and real per capita consumption has been flat. In a country once hailed as the epitome of equitable growth, a new precariat has emerged, with 40% of the labor force in non-regular employment.
Rare window of political opportunity
In late 2018, the coalition led by the Liberal Democratic Party had been in power for six years, making it the most stable government in recent Japanese history. It continued to hold a two-thirds majority in both houses of parliament, creating a window of opportunity for decisive political action in Japan such as has rarely been seen in recent decades. It is thus sobering that the Abe government has not made more progress with respect to its two major policy goals – that is, enabling a robust economic upturn, and seeing through the first-ever change to Japan’s postwar constitution.
Initial positive effects,
but recovery weak
but recovery weak
The initial major economic-stimulus program of 2013 (“Abenomics”) included an aggressive course of monetary easing and additional deficit spending. The short-term effects of this unprecedented policy gamble were positive, but consumption and investment levels have remained anemic, leading to a weak but prolonged recovery. Mild deflation has given way to slight inflation without producing a definitive upswing. The stimulus power of monetary easing now seems to have reached its limits. Key factors behind the stimulus measures’ limited economic impact include the lack of serious structural reforms and the population’s limited purchasing power due to fairly flat growth in real incomes.
Lack of attention to institutional reforms; strong economic growth requires serious reform
Since 2015, the focus on three new “arrows” – referring to a strong economy, better child care and improved social security – has further deflected attention from institutional reforms. The first arrow has been marked by rhetorical emphasis on productivity, small enterprises, regional economies and selected industries, but has in practice often relied on conventional concepts of industrial policy, which are of dubious value in today’s global economic environment. However, some progress has been made, for example with respect to better conditions for working women. At the same time, it is noteworthy that Abe’s 2018 cabinet included only one woman, down from five in 2014. In addition, problems relating to precarious employment conditions and unequal income distribution remain to be tackled. Old-age poverty and unstable jobs, especially among the young generation, continue to present pressing issues. To tackle these effectively, strong economic growth will be necessary; however, this in turn can be achieved only through serious reform in areas such as labor, agriculture and other heavily regulated fields.
Constitutional change remains unpopular
Constitutional reform, the government’s second major priority, has met with considerable resistance. While the government did manage to pass new security legislation in 2015, providing the basis for a more proactive national-security strategy, there has been little additional momentum since that time. Given the widespread unpopularity of constitutional change, even with junior coalition partner Komeito, the prime minister has been moving cautiously. Still, Abe remains determined to push ahead with constitutional change. Arguably, the political capital invested in this struggle could be better used elsewhere, especially in terms of advancing structural economic reforms and/or seriously addressing immigration needs.
Few dividends to good relationship with Trump
With regard to international policy, Abe’s amiable relationship with Donald Trump has not yet paid off. In terms of the North Korean conundrum, Japan has not been able to exert effective influence on recent diplomatic moves. However, Japan has played a major role in keeping the idea of trans-Pacific free trade alive, helping to enact the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which no longer includes the United States. Relations with China have become somewhat less strained, and Japan has successfully entered a free-trade agreement with the European Union, while also drawing closer with regard to strategic relations.
Government oversight remains weak
With respect to the quality of democracy, courts and the media remain limited in their effectiveness to provide sufficient checks on the government. High-level courts have become somewhat more restless, while social-media criticism of the government has grown. Civil society organizations have also become somewhat more active. However, these developments have to date had a quite limited impact on public policy. Concerns about press freedom and civil liberties have been mounting. Japan is now at the bottom of G-7 in terms of press-freedom ratings. Opposition parties effectively lack the ability to launch initiatives vis-à-vis the government. The governing coalition’s supermajorities in parliament severely impede the opposition’s capacity to exercise effective oversight.
Centralization has undermined state bureaucracy
The LDP-led government has quite successfully sought to steer from the center, for example by strengthening the Cabinet Office and its secretariat, and centralizing discussion fora for cross-cutting strategic issues. However, tensions between the core executive and line ministries (and their constituencies) remain. There are also concerns that tightening the political reins has negatively affected the neutrality and professionalism of the state bureaucracy.