Japanese Prime Minister Shinzo Abe has much to smile about after his party won a majority in upper house elections today. (Source: Reuters)
Japan held elections today in the upper house of its Diet, the House of Councillors. In a vote that was anything but uncertain, the long-dominant Liberal Democratic Party, and its partners the New Komeito Party, secured a majority in the upper house with today's vote, likely earning gaining 72 seats according to exit polls. For many, the vote is seen as an affirmation of the economic policies of Prime Minister Shinzo Abe. Coined Abenomics by the press, the drastic reforms Prime Minister Abe has initiated and proposed are intended to shock and kickstart the long-stagnating Japanese economy. These reforms are not only intended to address the recent recession, but actions that have affected Japan since the early 1990s. Here are some things you need to know about why Abenomics is very important in the months and years ahead.
1. Japan has been struggling for a very long time
Remember that scene in Back to the Future Part II, when the future Marty McFly turns out to be an office worker for a Japanese mega-corporation, with his Japanese supervisor firing him by video chat? That was based on mainstream beliefs at the time: Japan's economy was accelerating in the 1980s, and was, for a time, on track to surpass the United States as the largest economy in the world. However, after an economic bubble burst in 1991, the economy collapsed, and has barely grown since that time. The middling times the Japanese suffered became known as the Lost Decade. Even improvements at the middle of last decade did not translate into a return to the levels felt in the late 1980s, and allowed China to surpass Japan as the second largest economy in 2010. Reform has been desperately needed throughout this time.
2. Japan's problems lack an easy fix
Many of the economic problems that exist in Japan have long been structural, meaning that they cannot simply be changed with simple economic adjustments. Some of these changes have to do with Japanese culture itself. For example, up until recently, getting a job meant having a single position in a big company (called a keiretsu) for the entirety of your life. This policy later made it harder for young Japanese, even upstanding college grads, to secure work. Japan's population is aging, and has a very weak birth rate. The country has been heavily resistant in allowing any foreigners—especially Chinese and Koreans—to work there, let alone immigrate and gain citizenship in the country, thus precipitating the country's population. Finally, Japanese tradition heavily emphasizes saving and frugal spending, which goes against the current model of consumerist economics. All of these make it hard for Japan to grow economically and compete.
3. Japan has been in a political mess for a long time as well
After the wild-haired, Elvis-loving economic reformer Junichiro Koizumi resigned as Prime Minister in 2006, Japan has been through a period in which the leadership of the country changes on average of once per year. The first Prime Minister of this cycle was none other than Shinzo Abe himself, who succeeded Koizumi in 2006, only to resign exactly a year later. This carousel would lead to the LDP's 55-year stranglehold on Japanese politics being completely broken in 2010 with the Democratic Party of Japan winning a landslide majority in elections for the lower house of the Diet, the House of Representatives. However, even that was not enough to stop the cycle, with political scion Yukio Hatoyama resigning from his Prime Minister post less than nine months after elections. Without effective leadership, it became difficult to pass any law, let alone the reforms needed.
4. Abe is serious about reform...for now
To redeem himself after an unpopular first tenure as Prime Minister, Abe has clamped down with his drastic reforms. First, he pushed and made changes to the leadership of the Bank of Japan, which is the country's equivalent of the Federal Reserve. After reshaping that leadership, Abe began his Abenomics in earnest: He allowed the yen to decrease from its extremely high value significantly, and ordered the government to buy assets in commercial businesses, the latter practice known as quantitative easing (which has been used by the American government to minimize the country's recession). Additionally, Abe specifically targeted the inflation rate of the country, aiming for 2% inflation per year to allow for economic growth. He also committed to employing negative interest rates, an increase in a sales tax, and major investment in public works projects. With the LDP retaking the upper house, passing laws to enact these reforms will be much easier. But it remains to be seen whether Abe will stick with these reforms, since many (including the sales tax increase) will prove unpopular with the public and members of his own party.
5. Abe is guided by patriotism...Too much of it
Many analysts consider Abe to be among the more nationalist and right-wing members of his party, and it shows. Abe has frequently engaged in denialism and revisionism over Japan's actions in World War II, including the forced prostitution of thousands of Korean and Chinese women. He frequently visits the controversial Yasukuni Shrine, a hall for the dead that venerates Japanese who served, including several war criminals from the aforementioned war. He seeks to not only restart the Fukushima nuclear reactors that melt down after the March 2011 earthquake and tsunami, but also build more nuclear power plants. With Abenomics, many believe Abe will use it as a defense and cudgel against his now-powerful neighbors, South Korea and China, and it will allow him to have the upper hand in territorial disputes such as the Diaoyu/Sankaku Islands. There are some worried that Abe's nationalist swagger and economic strategy will lead to greater conflicts. They are not without reason: Since being elected in December 2012, the Prime Minister has neither met nor visited his counterparts, Chinese Premier Xi Jinping and South Korean President Park Geun-hye.
6. Abenomics is working...so far
No matter the concerns that people have over Abenomics, one thing is for certain: It's working. The yen has declined in value from around 80 to 100 yen to the dollar, making it a more competitive currency. The Nikkei 225, Japan's primary stock index, has risen over 2/3rds since before last year's election, though remains a third under its 1991 peak. Japanese consumer confidence has improved, as has the GDP (though only marginally at the moment). Negative interest rates have opened up the country's credit flow, spurring growth. Whether future changes in Abenomics following this election will continue to make improvements to the economy remains to be seen. Further, while several key issues have been and will be addressed, the old elephant in the room that is Japan's age and immigration issue remains undiscussed, though it may be the point where any economic policy stalls, even with a fancy name as Abenomics.