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Reinventing Japan

Alexander Freund / cb, cmkDecember 15, 2014

Shinzo Abe has won a convincing victory, but he should not see this as a validation of his policies. Instead, says DW's Alexander Freund, Japan's prime minister must implement reforms and confront uncomfortable truths.

Shinzo Abe at a press conference
Image: Reuters/T. Hanai

Shinzo Abe's plan was destined to work out. After all, the prime minister won the early election by a landslide because there weren't any real alternatives. The opposition in Japan is hopelessly divided and lacking direction.

The convincing victory is also a confirmation of Abe's contentious economic program, the so-called Abenomics, which the prime minister wants to use to return the world's third-largest economy to its glory days after years of deflation and depression. Japan wants to once again be able to take a stand, economically, but also politically. Still, by no means are all Japanese citizens satisfied with Abe's path.

Abe is counting on decisiveness and optimism instead of security and stability. "The economy is 50 percent psychology," said former German Chancellor Ludwig Erhard, the father of Germany's 1950s economic boom.

This credo also applies to Abe. When the economy is flourishing, people feel good. When people feel good, the economy is flourishing. It's that easy - or at least economic liberals claim that it is.

Confirmation despite great doubt

Alexander Freund
Alexander Freund heads DW's Asia departmentImage: DW/Christel Becker-Rau

For his Abenomics plan, Abe has invoked the old legend of the three arrows known by every Japanese child. One arrow is easy to break, but a bundle of three withstands pressure. Strength through unity, in other words.

Abe's three arrows are an aggressive monetary policy, state-sponsored economic programs and structural reforms. The first two arrows didn't miss their targets at first: Abe simply disempowered the Japanese central bank and printed lots of new money. That weakened the domestic currency, but made Japanese products more competitive in the short run, stopping deflation and boosting economic growth. Abe also needed the abundance of new money for his second arrow, a huge program to boost the economy - and financed by debt.

Nevertheless, government-mandated optimism did not break out. Because it's not just about psychology; it's also about hard facts. And in reality, not much has improved. Consumers don't have more money in their wallets, due in part to an unpopular tax.

And what they do have is rapidly losing value. Everything is becoming more expensive, but wages haven't really increased in recent years. That should actually be good news for the economy, but even the business sector has only placed a conditional trust on Abe's economic program. Demand is lacking and in truth, many companies have no need for cheap money - they're already hoarding vast reserves.

Abe's spark has failed to ignite, and Japan's economy is back in a recession. And the national debt is, at more than 250 percent of annual economic output, in an even more dramatic state than before Abe took power in late 2012.

Uncomfortable reforms necessary

And yet, the vast majority voted for Abe, in part because only he has the political force necessary in order to address the real challenges and uncomfortable truths. But so far, Abe has left his third arrow in the quiver: long overdue structural reforms.

The Japanese labor market is inflexible and overregulated, the healthcare sector needs more competition and the agricultural market is largely closed off - Abe's core constituency of conservative Liberal Democratic Party (LDP) members has made sure of that.

Immigration policy remains extremely restrictive, despite Japan's aging society and a dramatically low birth rate. Yet no government has dared to reform these structures. After his election victory, Abe must now draw the third arrow from his quiver and initiate these uncomfortable reforms.

After this electoral vote of confidence, Abe will likely restart Japan's unpopular nuclear power program; oil, gas and coal imports are ruining the state budget, due in part to the low yen exchange rate. Despite the Fukushima disaster, there's a lack of political will for a Japanese energy revolution. It's easy for Germany to criticize, but we can easily tap electricity grids in neighboring countries when things get tight. That's not an option for an island nation like Japan.

Confidence instead of confrontation

In terms of foreign policy, Japan aims to maintain its position as one of Asia's major powers - above all against the emerging superpower China, which has increasingly been going on the offensive. To that end, Abe wants to adapt Japan's pacifist constitution, written by the Americans following World War II, to better reflect new realities.

This request may be legitimate, but the concerns of Japan's neighbors are just as legitimate. In the past, Japan has woefully failed to face responsibility for its past wrongs and build trust with its neighbors. Instead of seeking allies, Abe has unnecessarily burdened Japan's relationships with nearby nations with his nationalist, conservative tactics. This, too, is an uncomfortable truth.

Japan will only make its way back to the top if it has the courage to make these reforms and face these uncomfortable truths. Back, that is, to the position it enjoyed in the late 1980s, achieved through innovation and efficiency.

Japan needs to reinvent itself. This will be an enormous challenge - for the government and Japanese society. Abe's resounding majority on Sunday can be seen as confirmation that there is a will for change. In the end, the country has no other choice.