Date
18 October 2018
Rather than gamble on constitutional reform, a much more manageable target for Japanese PM Shinzo Abe would be to reinvigorate the so-called Abenomics, observers say. Photo: Reuters
Rather than gamble on constitutional reform, a much more manageable target for Japanese PM Shinzo Abe would be to reinvigorate the so-called Abenomics, observers say. Photo: Reuters

Abe should focus more on economy, not constitutional reform

Shinzo Abe’s landslide victory in the ruling LDP party’s presidential election leaves him in an unprecedented position of power, and makes him likely to become the longest serving Japanese premier ever. He seems intent on a high risk tilt at securing a legacy of reforming Japan’s constitution. He should focus instead on the economy.

Japan’s constitution needs change, so reform is an alluring prospect. But it’s also a huge, fraught gamble.

The country has the oldest written constitution in the world and there’s no precedent on a range of the constitutional issues up for debate. He will need a two thirds majority in parliament and then a simple majority in a subsequent public referendum.

There’s also no evidence that the public is crying out for reform. A recent Kyodo poll indicated 49 percent oppose plans to submit later this year. Abe’s approval rate may have bounced of late but his golden touch on the campaign trail is likely to be tested in a national referendum format. Elections are rarely ‘issue-based’ in Japan and if he loses a referendum then he will have no option but to step down.

A much more manageable target would be to reinvigorate Abenomics. Abe’s centerpiece economic reform has been at best a fleeting success and he now has three years to salvage something durable from it.

There’s plenty he could do. The country’s fight against deflation is far from over. Inflation fundamentals have been weakening this year and external risks are rising in the form of global trade and wider emerging market stress. Just focusing on how to meet the central bank’s price target would be a laudable, and significant, endeavor.

Meanwhile, the government’s fiscal priorities need a major overhaul if the country is going to get onto sustainable debt path.

The Japanese system of direct taxation has become incompatible with its demographics and left it with tax revenues significantly below the OECD average. Meanwhile, social security spending on its elderly population continues to spiral.

Rather than get bogged down on constitutional reform, the upcoming autumn and winter Diet sessions are an opportunity to accelerate the pace of productivity enhancing structural reforms. Product market deregulation in the service sector has made limited progress while attempts to accelerate technology commercialization are being hampered by Japan’s low start-up and bankruptcies rates.

Abe has the political capital to reinvigorate Abenomics. If the gamble on constitutional reform goes wrong then his plans – economic or otherwise – will lay in tatters. Prime Minister Abe would do well to lower his gaze to a more modest but achievable goal.

– Contact us at [email protected]

RC

Japan and Developed Asia Economist, Aberdeen Standard Investments

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