Observing Japan

Can Japan be cured? A review of Murakami Ryu's 'From The Fatherland, With Love'

noreply@blogger.com (Tobias Samuel Harris) — Wed, 20 Jul 2016 13:30:00 +0000

Note: I originally wrote this review in 2013 for submission to the London Review of Books. The LRB passed, and it has sat orphaned on my hard drive. I figured I should probably put it here.

A review of From The Fatherland, With Love by Ryu Murakami

Translated from the Japanese by Ralph McCarthy, Charles de Wolf, and Ginny Tapley Takemori

Pushkin Press, 664 pp

Shinzo Abe returned to Japan’s premiership in December 2012, after spending five years in the political wilderness following his resignation as prime minister in September 2007. Promising bold economic reforms as well as constitution revision and a stronger military, Abe’s message to the Japanese people and Japan’s allies and adversaries around the world can be encapsulated in the three words that were the title of his address in Washington, D.C. this past February: Japan is back.

But despite Abe’s self-assurance, these remain anxious days for his country. Unseated as the world’s second-largest economy by China in 2010, Japan continues to struggle to find its footing economically. Its manufacturers are locked into competition with rivals in neighboring South Korea. Its government continues to rack up large annual deficits, contributing to net government debt’s approaching 150% of GDP. Japan’s politicians have discussed new growth strategies for years, with little or no success. At the same time, China and South Korea have pressed claims to disputed islands, and the United States, Japan’s longtime ally, is distracted by problems elsewhere in the world. And all the while, each year Japan’s slow-motion demographic crisis worsens a little more, with senior retirees taking up an ever-greater share of the population — and placing ever-greater demands on the country’s finances.

Time will tell whether the Abe government will guide Japan out of the economic stagnation of its “lost” decades. But a newly translated novel by Ryu Murakami, the novelist and filmmaker who is Japan’s answer to J.G. Ballard and Michel Houellebecq, suggests that Japan’s problems are deeper than broken institutions or ineffective policies. Echoing critiques of industrial society dating back at least as far as Friedrich Nietzsche, Murakami believes that Japan suffers from a spiritual crisis. Having grown prosperous, he fears that decadence and love of comfort have prevented the Japanese people from meeting the political and economic challenges their country faces in the twenty-first century. Accordingly, Murakami suggests that it will take more than new policies for Japan to lead in East Asia and the world: Japan needs a revolution of the spirit.

Like Houellebecq, Murakami writes “slipstream” novels that border on science fiction, presenting exaggerated or fractured versions of reality for the sake of social criticism. Both authors confront what they see as the nihilism at the heart of post-industrial capitalist societies. Their critiques grapple with Nietzsche’s vision of the society of the “last man” from Thus Spoke Zarathustra. Nietzsche warns that, when society has become too prosperous and too accustomed to comfortable living, humanity will no longer strive or compete. Human beings will conform to mass society, none will desire to rule others, and all will fear hardship and suffering. The pursuit and preservation of comfort will replace all other values.

The portrait Murakami has painted of Japan throughout his career is of a country populated by “last men,” who, filled with ennui, seek their silly little pleasures and are incapable of acting in pursuit of higher principles. Seeing his society as dulled by prosperity and “anything goes” post-modernism, Murakami seethes with anger at the frivolity and decadence of modern Japan.

But Murakami is not resigned to decadence and decline. His novels seek to shock his readers awake, to force them to see Japan’s spiritual malaise. He struggles to stir his fellow Japanese to confront their society’s sickness head on and to embrace a new national spirit less inclined to conformism and dependence on others. Although From The Fatherland, With Love was originally published in 2005, its English translation from Pushkin Press is exceedingly timely: it provides a striking corrective to some of the heady coverage in the world press of Abe’s return to Japan’s premiership. Even if one disagrees with either Murakami’s diagnosis or his cure for what ails Japan, his latest novel to be translated into English is required reading for thinking about deeper causes of Japan’s enduring stagnation.

Set largely in April 2011 — a near-future Japan when it was written in 2005 — Murakami shows Japan impoverished, isolated, and incapable of acting independently even when faced with an unprovoked invasion by North Korean forces. Seeing Japan brought low by a global depression that strains its ties with the US, which has shifted its attention from its alliance with Japan to improving relations with North Korea and the other countries of East Asia, the North Korean regime hatches a plan that seems to serve no other purpose than humiliating Japan. A North Korean commando team infiltrates Japan and takes hostages at a baseball game in Fukuoka, a city of 1.5 million people on the island of Kyushu. Claiming to be a rebel faction opposed to North Korea’s peace overtures with the US and publicly denounced by Pyongyang, they proceed occupy Fukuoka. The US considers it a problem for the Japanese government to solve, since the invaders are purportedly rebels without state sponsorship. The Japanese government itself is initially paralyzed. Afraid that a counterattack will result in unacceptably high civilian casualties in Fukuoka or in North Korean terrorist attacks on government buildings and critical infrastructure throughout Japan, the government eventually decides to impose a blockade, effectively cutting off not just Fukuoka but all of Kyushu from the rest of Japan.

The citizens of Fukuoka are left to cope with the occupation force, which calls itself the Koryo Expeditionary Force (KEF) after the Korean dynasty that cooperated with the Mongols to invade Japan in 1274 and 1281. (The invasions, which were turned back thanks to great storms — the legendary kamikaze, or “divine wind”— were centered on Hakata Bay, site of present-day Fukuoka.) The invaders secure the collaboration of local government and police through discriminate demonstrations of force. The occupiers are careful to avoid civilian casualties, treat local citizens politely, and win public support by imprisoning local elites guilty of “anti-social” crimes, such as tax evasion and human trafficking, and confiscating their assets to fund the occupation. At the same time, the national government alienates Fukuokans first through the blockade and then when an ill-considered government-authorized attempt by a police assault team to take several North Koreans hostage results in the death of dozens of civilians. Although individual Fukuokans are uneasy with the occupation, no organized resistance emerges, and over time foreign governments pressure the Japanese government to lift the blockade so to allow trade to resume.

Meanwhile, a fleet carrying 120,000 North Korean soldiers to reinforce the occupation departs for Fukuoka. The Japanese government deploys the Self-Defense Forces to intercept the fleet but is unable to commit to a course of action. In Fukuoka, Japanese collaborators prepare a campground for the arriving army and work to procure supplies. Everyone is aware that, if the reinforcements arrive, the occupation of Fukuoka is unlikely to be reversed.

Fukuoka is ultimately saved by a gang of violent young misfits — according to their spiritual adviser, a cryptic terrorist-turned-poet named Ishihara, they’re “terror babies,” who “can’t be compromised or held to any social contract” — who carry out a plot to eliminate the KEF before the reinforcements arrive. The members of Ishihara’s gang, who flock from across Japan to the abandoned warehouse he calls home, all have histories of violence, often against their own families. One of the older members trains with an Islamic terrorist group in Yemen after losing an investment job. Many are otaku, Japan’s obsessive hobbyists: one collects poisonous animals, especially centipedes and frogs, another collects guns from around the world, and another is obsessed with explosives. Initially, they have no unifying ideology or group identity, just their tendencies and an attachment to Ishihara. But as they prepare to take on the KEF, Ishihara articulates a nihilist ideology for his protégés:

We live to destroy. There are only two types of people in this world: those who scrimp and save little by little to build a breakwater or levee or windbreak or irrigation canal, and those who destroy the vested interests and the old system and the fortress of evil with enough emotion and inspiration and fervor and fury and desire and passion fruits to crack open everyone’s skull and ring their balls like bells.

Where the establishment fails, these loners succeed, serving as the “divine wind” that defeats the third invasion of Hakata Bay.

At the most basic level, the novel succeeds as entertainment. Despite its length, it reads breezily, a testament to the translation work of Ralph McCarthy, Charles de Wolf, and Ginny Tapley Takemori. The scenario described by Murakami is far fetched for a number of reasons, but as long as one accepts Murakami’s premises the novel reads like a better-written cousin of Tom Clancy’s techno-thrillers (or perhaps a write-up of a government war game). But the novel is worth reading because of Murakami’s diagnosis of what ails Japanese society.

Murakami suggests that living in a peaceful, wealthy society — with the lowest levels of violent crime among large, developed democracies and a military that not only cannot be called a military but is banned from using arms even in self-defense when deployed abroad — has psychologically disarmed the Japanese people. Over and over again, Murakami depicts Japanese civilians freezing when confronted with violence committed by North Koreans. Most paralyzed, of course, is the Japanese government, which, from the beginning of the novel, is depicted as helpless in the face of economic collapse and international isolation.

The government is virtually immobilized when the North Korean operation begins. The prime minister and other senior officials are away from Tokyo and have trouble getting back to the capital. Once the crisis management team takes form, there are too many officials involved for effective decision making; lengthy lists of the officials and their full titles read like the dramatis personae of a Gilbert and Sullivan operetta. But it isn’t just the number of officials involved in the crisis headquarters that handicaps its deliberations: it is the fear, from the prime minister downwards, of what could result from an aggressive response to the KEF invasion. The government orders the blockade as a means of avoiding a costly decision. As one official who had been fired from his government post notes, “Being outside the frenzy of the round table, he had become painfully aware of the Japanese government’s inability to see the big picture — and if he could see it, no doubt other outsiders could see it too.” The government seems to spend more time debating how to refer to the KEF (Are they terrorists? Are they a foreign army?) than determining how to defeat the invasion. But Murakami delivers an unambiguous message that the problem at the heart of the government’s inaction is squeamishness about violence:

Resignation was gradually spreading around the table, like a bad smell. Resignation meant submitting to greater power, and abandoning any idea of resistance. Power was built and maintained with violence. A population accustomed to peace had no taste for either meting out or being subjected to brutality, and couldn’t even imagine what it would involve. People unable to imagine violence were incapable of using it.

Murakami subsequently describes Japanese politics as characterized by the suppression of any and all conflict, not unlike what Nietzsche’s Zarathustra says: “People still fall out, but are soon reconciled — otherwise it spoileth their stomachs.” In other words, not only are Japan’s leaders incapable of imagining violence, they cannot even bear verbal disagreements for long. There is some disagreement as the government weighs its options, but opponents of the majority quickly fall into line.

Murakami, however, is certainly able to imagine violence, and in this novel as in earlier novels he depicts ultraviolence and gore in excruciating and almost clinical detail. Eyes are gouged out, throats are stabbed, skin is flayed, heads are blown off, guts are spilled, and arteries are severed. Blood, flecks of brain, and pieces of bone fly about. The Japanese prisoners taken by the North Koreans are imprisoned in a parking garage, tortured by their captors and reduced to shells of their former selves:

Just in front of them someone moaned in pain and toppled forward, hands on the floor to support his body. The long shadow of a soldier moving toward him made the man shake his head and whimper like a child. The soldier grabbed his hair and pulled him upright. Still held by his hair, he began desperately apologizing, yelling almost incoherently that he was sorry, as the soldier’s nightstick came down at the joint of his shoulder.

After hundreds of pages of these scenes, a reader cannot help but feel numbed. But though Murakami is a self-professed admirer of Quentin Tarantino, there is more to the violence in From The Fatherland, With Love than spectacle. Murakami is driving home the point that, although they live in a society that has driven violence to the margins, the Japanese people still belong to a violent species and live in a violent world. Japanese are not exempt from the brutality with which human beings are capable of treating each other. They cannot hide from it forever.

In considering violence, Murakami presents North Korea as Japan’s foil. Whereas Japan is soft, right down to its underwear as the occupiers discover when they are furnished with local provisions, North Korea is rough, austere, and cruel. Murakami’s North Korean commandos recall watching their families starve, recount their harsh training in North Korea’s special forces, and are amazed even at the availability of water from Japanese taps. The North Koreans are physically imposing and menacing, even more so because they are careful to avoid civilian casualties: there is exceptional power in the discriminating use of force. Murakami hints that Japan had once been like North Korea, capable of meting out cruelty as a way of imposing its will on Korea and other Asian nations. The North Koreans themselves are surprised at how weak the Japanese are. “Where was the Japan,” one commando wonders, “that once shook not only Asia but the entire world?”

Murakami’s North Korean characters are perhaps the most compellingly drawn characters in the novel. Whereas at times his Japanese characters — the shrewd reporter, the dithering politician, the selfless doctor — seem like caricatures, the North Koreans are fully fleshed out. One gets a clear sense of the mixed emotions they feel when they encounter Japanese prosperity for the first time and the ways in which they have been marked by their lives in spartan North Korea. In the afterword, Murakami discusses the extensive research he conducted on the North Korean regime and everyday life in North Korea, including interviews with refugees from the north living in Seoul, and it shows in the manner in which he presents the perspectives of the North Koreans. Murakami does not, however, evince sympathy for the North Korean regime itself. As troubling as he feels Japan’s decadence is, North Korea just practices a different form of decadence, using the power of the masses to inflict equal suffering on all. There is no value, he suggests, in hardship for the sake of hardship.

In that sense, Murakami is not nostalgic for prewar Japan. He does not have any illusions about the violence Imperial Japan inflicted on others or on its own people. The cure for the soul sickness that ails Japan is not authoritarianism, xenophobia, or militarism. In the novel, Murakami is dismissive when he describes Japanese right-wingers who want Japan to acquire nuclear weapons and remilitarize.

Rather, Murakami’s prescription for overcoming decadence and moral torpor is not unlike that of Jean-Paul Sartre and other existentialists. As Sartre writes in “The Republic of Silence,” during the German occupation, individuals learned that there were values greater than life itself, values worth dying for if necessary: “At every instant we lived up to the full sense of this commonplace little phrase: ‘Man is mortal!’ And the choice that each of us made of his life and of his being was an authentic choice because it was made face to face with death, because it could always have been expressed in these terms: ‘Rather death than…’” Faced with decisions with mortal consequences, individuals learn that there is more to freedom than satisfying their every desire.

Along these lines, Murakami depicts Fukuoka and Kyushu prospering in the aftermath of the invasion, with local governments making much-needed reforms to lessen their dependence on Tokyo, reducing their unemployment rate, and developing their own relationships with Japan’s neighbors in East Asia. By contrast, he suggests that the central government learned nothing from the incident, with the economy still in depression and Japan still isolated internationally. In the epilogue, one character finds himself wishing that the occupation had continued, with the implication that it might have forced the national government to learn the same lessons as the citizens of Kyushu.

Murakami’s response to the 3/11 disasters in Japan suggests the important thing for him is hardship, not violence. As he wrote in the New York Times on March 16, 2011, “But for all we’ve lost, hope is in fact one thing we Japanese have regained. The great earthquake and tsunami have robbed us of many lives and resources. But we who were so intoxicated with our own prosperity have once again planted the seed of hope. So I choose to believe.” He wants the Japanese people to be forced to make choices about what matters to them, to make tough decisions and sacrifices instead of dithering or letting the national government or other countries make decisions on their behalf. His credo is, in short, a kind of hopeful existentialism, which he believes is the only way Japan will thrive in an era of economic uncertainty and a new multipolar global order.

The two years since 3/11 surely must have disappointed Murakami, as politics quickly returned to business as usual in Tokyo and as the hardship endured by the citizens of northeastern Japan faded from the headlines and remained a local concern. And it is difficult to believe that the Abe government will satisfy Murakami. It is revealing, of course, that Abe chose to declare that “Japan is back” to an audience of alliance managers in Washington, D.C., suggesting that whatever steps Abe takes to strengthen Japan’s defense capabilities, he will do so within the confines of an alliance within which Japan is the junior partner. But even in Abe’s much-vaunted economic program — widely known as “Abenomics” — there are signs of the old bad habits which lead Murakami to despair. For all its boldness in monetary policy, the government has been reluctant to outline radical reforms when it comes to how the Japanese economy functions. A strong-state nationalist, it is unlikely that Abe will greatly reduce the dependence of prefectures and local communities on the central government or allow individuals greater autonomy. But then, it is clear in From The Fatherland, With Love that Murakami believes that Japan’s spiritual revival will not be the result of political programs or directives from Tokyo. The best that Tokyo may be able to do is step out of the way of Japan’s local governments and citizens.

However, the aftermath of 3/11 contains a dispiriting lesson for anyone distressed over the health of postindustrial societies. There may be no escape from the society of the “last man.” Once people have come to enjoy a certain standard of living, it may be difficult to get them to think about anything else for very long. There may be nothing more for politicians to do than to distribute resources and try to keep the pie growing (or prevent it from shrinking too much). Frivolity may be unavoidable, even in the face of natural disasters and other tragedies. It may be that, once they’ve had a taste of prosperity, human beings have no interest in Sartre’s “austere virtue.” In that sense, From The Fatherland, With Love is a tragic thought experiment, an illustration of how difficult it is to rebuild society on the basis of hopeful existentialism. Nietzsche may in fact have the last laugh.

Japan's Upper House Elections: A Question of Stability

noreply@blogger.com (Tobias Samuel Harris) — Fri, 08 Jul 2016 14:26:00 +0000

Japan’s party leaders have argued that voters face a stark choice in the July 10 election for the Diet’s upper house. Prime Minister Shinzo Abe has warned that the opposition wants to undo Abenomics and bring Japan back to economic stagnation; Katsuya Okada, leader of the opposition Democratic Party (DP) has called upon voters to stop Mr. Abe from “running wild” over Japan’s democracy.

In reality, however, the most likely result of the election is that it will reaffirm the ruling Liberal Democratic Party (LDP)-Komeito coalition’s stable control of the Diet.

Although Mr. Abe took power promising to overcome Japan’s long-term economic decline and introduce “bedrock reforms,” the prime minister’s most notable achievement has been his durability. He has ended Japan’s revolving-door premiership that saw seven new prime ministers take office 2006-2012 (including Mr. Abe twice); used the newly expanded powers of the premiership to control the bureaucracy and dominate policymaking; and disciplined members of his own Liberal Democratic Party (LDP). He has run some risks – reinterpreting Japan’s constitution and then updating legislation to allow its armed forces to exercise the right of collective self-defense – but generally Mr. Abe has governed cautiously.

As a result, his government’s approval ratings have remained historically strong. Since the start of 2016, its approval ratings have only briefly fallen below 45% and never below 40%, and have occasionally risen above 50%. These approval ratings have persisted despite growing disapproval of Abenomics and other policy initiatives. Voters are therefore likely to ensure that the ruling coalition retains a stable upper house majority on July 10. After all, 49% of respondents told the Yomiuri Shimbun, Japan’s largest daily newspaper, that they support the Abe administration retaining its upper house majority next month, compared with only 36% who do not. In other words, the Japanese people are not joining in the global anti-establishment wave; indeed, to the extent that populist revolts like the United Kingdom’s Brexit vote have global economic consequences, they may make Mr. Abe’s stable grip on power even more appealing to voters.

Ironically, the greatest risk to Japan’s political stability may be not that the ruling coalition loses ground to the opposition, but that the Abe government performs so well as to win an upper house supermajority and so have the votes with which to pursue constitutional revision.

The risk is not, however, as Mr. Okada and other opposition lawmakers have presented it, that Mr. Abe will be “run wild,” replacing Japan’s postwar constitution and otherwise eroding existing democratic institutions. If the LDP, its coalition partner Komeito, and a handful of smaller pro-revision parties win the seventy-eight seats needed to win an upper house supermajority it would enable Mr. Abe to pursue his long-cherished goal of revising Japan’s postwar constitution – which is guaranteed to be a divisive process. Indeed, a revisionist push by Mr. Abe would be so controversial that it is difficult to see how Mr. Abe could survive in office. Even an innocuous amendment relating to something other than Article 9, the so-called “peace” clause, could be the source of controversy, since critics would try to present any amendment as a Trojan horse for a broader revisionist campaign.

Meanwhile, it is not even clear whether the ruling coalition could agree on a plan for revision. Although Komeito, the centrist junior partner, is nominally in favor of revision, its members have a dramatically different vision for what should be amended than their LDP counterparts. A survey of upper house candidates by University of Tokyo political scientists and the Asahi Shimbun found Komeito candidates largely prefer amendments regarding environmental protection and privacy rights; LDP candidates prefer amendments recognizing the Self-Defense Forces (SDF) as a military and strengthening the state’s ability to respond to emergencies. Meanwhile 68% of LDP candidates would want the constitution revised during their term, 80% said they were not particularly fixated on the next term. Not a single one said they thought it should be a priority for the upper house over the next six years.

No less importantly, given that Japan’s parliamentary norms protect the right of minority parties to be heard, opposition parties are categorically opposed to Mr. Abe’s vision for the constitution and would use every parliamentary tactic at their disposal to stall the debate. Heated parliamentary debates would undoubtedly be accompanied by enormous protests outside the Diet, as happened in 2015 as Mr. Abe guided controversial national security laws through the parliament. After all, polls consistently show that not only does the public oppose revision, but few voters think it should be a top priority for the government.

For these reasons, it is possible that Mr. Abe could pass on constitutional revision even with an upper house supermajority. However, there is no question that with supermajorities in both hands Mr. Abe will be tempted to pursue a goal that he inherited from his grandfather, wartime cabinet minister and postwar prime minister Nobusuke Kishi, and which has been fundamental to Mr. Abe’s identity as a politician.

Therefore, from the perspective of Japan’s continuing political stability the best possible outcome for Mr. Abe, Japan, and the opposition may be for the opposition to exceed expectations and deny the government a two-thirds majority in the House of Councillors. Winning by less than he had hoped will force Mr. Abe to devote his energy to a much-needed course correction for Abenomics instead of gambling on constitutional revision. No less importantly, a stronger-than-expected performance could breathe some life into the Democratic Party, which has struggled to remain relevant in the face of Mr. Abe’s dominance. After all, over the longer term, the best guarantor of political stability – and effective policymaking – will be meaningful competition for power between Japan’s two major parties.

Will Abe lead on the consumption tax?

noreply@blogger.com (Tobias Samuel Harris) — Fri, 09 Aug 2013 21:19:00 +0000

On Friday, Prime Minister Abe Shinzō headed off (jp) to the mountains in Yamanashi prefecture for an eleven-day summer holiday. He leaves behind a growing debate in Tokyo about the wisdom of proceeding as planned with the consumption tax hike scheduled to be phased in from 2014-2015 (5% to 8% in April 2014, 8% to 10% in October 2015). Abe has said he will make his decision about the tax sometime over the next two months, leaving proponents and opponents of the hike to make their cases once again.

Arguably the supporters of the tax hike won several victories this week.

First, at the start of the week the IMF advised the Japanese government to stick to the plan as concluded in 2012, arguing that the tax hike will signal the government's commitment to fiscal restructuring and will therefore bolster investor confidence. The IMF has been saying that the consumption tax rate should rise to 15% for years now, so its advice for Japan is not new. But the fund's intervention gives proponents an important international backer as they make their case to the prime minister.

The next victory for proponents of the hike came on Thursday. Bank of Japan President Kuroda Haruhiko, speaking to the press after the BOJ policy board's regular meeting, voiced his support for raising the consumption tax and said (jp) that the BOJ's radical monetary policies and the planned hike were not incompatible. Like the IMF, Kuroda stressed the importance of reassuring investors that the Japanese government is serious about getting its financial house in order.

Finally, on Friday the Nikkei Shimbun ran a major article (jp; registration required) — basically an editorial — addressed to senior government officials who are "nervous" about the consumption tax increase that sought to reassure them that raising the consumption tax next year would not be like raising the consumption tax from 3% to 5% in 1997. The article opens by explaining that the 1997 hike came in the midst of a regional financial crisis and at a time when the balance sheets of Japanese banks and corporations were loaded with bad debts. Having established that 1997 was a particularly bad time to raise the consumption tax, Nikkei pivots to say that since banks and businesses have more "stamina" today, it's appropriate to take on the challenge of the national debt in order to reassure global financial markets, which, Nikkei reminds us, are roughly three times larger than they were in 1995. With that in mind, the article warns that at the first sign that the government is not serious about raising the tax, investors will short Japan in a heartbeat.

As arguments on behalf of austerity go, there is nothing earth shattering in the Nikkei article, in fact it contains pretty much the same arguments that Paul Krugman has critiqued for years, including in this 2010 column: the "confidence fairy" and the "bond vigilantes." But the arguments are less important than the reality that Japan's powers that be are lined up behind raising on the consumption tax on schedule in April 2014. The tax hike not only has the support of the BOJ president and Japan's leading business daily, but also the head of Keidanren (jp) its most powerful business lobby; Amari Akira, Abe's own minister for economic and fiscal policy; and leading members of the LDP, which has, after all, campaigned on raising the consumption tax for the last several elections. Of course, it almost goes without saying that the ministry of finance wants to see the tax hike proceed as scheduled.

The forces arrayed against the tax, at least at the elite level, are thinner. Hamada Kōichi and Honda Etsuro, Abe's leading economic advisers, have both voiced skepticism about the current tax hike plan, with Professor Honda's arguing (jp) that the tax should be phased in at 1% a year rather than in two phases. Saitō Tetsuo, the chair of LDP coalition partner Komeitō's taxation committee, has stressed the need to take economic conditions into consideration when deciding whether to go forward with the hike. Beyond elite circles, perhaps most significant fact is that the public is overwhelmingly opposed to the tax hike: Asahi's post-election opinion poll found (jp) 58% opposed and only 30% in favor.

Given that sustainable, robust growth is still far from assured — and that wages have yet to rise, suggesting that consumers would really feel the sting of the tax hike — the facts are probably on the side of the skeptics. The proponents still have to explain (1) why the confidence of global markets is so important when, as Michael Cucek reminds us, Japan is largely invulnerable to "bond vigilantes" and (2) why confidence would evaporate now as opposed to anytime over the past decade of swollen deficits. If anything, delaying the consumption tax hike should signal to financial markets that the Japanese government is serious about reviving Japan's economy.

But this week shows that the facts have an uphill battle against a good portion of the Japanese establishment (with the support of international actors like the IMF). After finally securing a plan in 2012 to raise the consumption tax, they are not about to let the Abe government back out of its commitment. With the final decision resting on Abe's shoulders, this issue is as good a chance as any for Abe to show that he can be the strong, decisive leader he claims to be.

The real problem with Asō's gaffe

noreply@blogger.com (Tobias Samuel Harris) — Fri, 02 Aug 2013 23:53:00 +0000

After the uprising of the 17th of June
The Secretary of the Writers' Union
Had leaflets distributed in the Stalinallee
Stating that the people
Had forfeited the confidence of the government
And could win it back only
By redoubled efforts.
Would it not be easier
In that case for the government
To dissolve the people
And elect another?

Bertolt Brecht, "Die Lösung" (1953)

Deputy Prime Minister/Finance Minister Asō Tarō kicked off the second leg of the second Abe government with a fine contribution to the hall of fame of gaffes committed by Japanese politicians.

Speaking at a symposium hosted by the right-wing Japan Institute for National Fundamentals, Asō spoke about how the Abe government should approach constitution revision. He said:

Now if you say "let’s do it quietly," you need to look back at the Weimar Constitution, whose amendment went unnoticed. It was changed before most people realized it had happened. We need to learn from this. I have absolutely no intention of rejecting democracy. But I don’t want to see us make these decisions in the midst of an uproar.

(That's from a translation by Peter Durfee; the full text of his remarks can be found here.)

The resulting international uproar — usually presented under headlines like "Japanese Finance Minister Taro Aso comes under fire for Nazi remarks" — has resulted in Asō's coming under pressure to resign from opposition parties, and under pressure from the prime minister (jp) to retract his remarks. He has retracted, but has said he will not resign.

However, in my reading of his remarks, Asō's interpretation of how the Weimar constitution was revised may have been the least offensive aspect of his speech. What's offensive about Asō's speech is the arrogant disdain for the messy reality of democracy, the lament of every would-be utopian in history eager to ram the square peg of humanity into their round hole of choice. Asō repeatedly bemoans the "boisterousness," "tumultuousness,"and "uproariousness" present in public discussion of constitution revision. He seems to say, Why can't the people see that we know what's best for them? Can't they see that the facts demand revision? I read this less as a blueprint for revision than as a whine about how it's all the fault of the public and the mass media for how little success Japan's revisionist right has had when it comes to building a consensus in favor of their vision of the constitution.

Why shouldn't the debate be boisterous? Why shouldn't there be uproarious and fierce opposition when the debate is about the document that serves as the nation's moral center — especially when the LDP's draft makes no secret of its plans to change the values enshrined in the constitution? Why shouldn't Japanese defenders of the constitution feel just as strongly about defending a document — a document that, whatever its origins, has become an important pillar of postwar Japanese society — as the revisionists feel about changing it? Who are Abe, Asō, and company to decide whether a debate is being conducted appropriately or not?

At its best, liberal democracy is "boisterous" and "uproarious," because if the people have the freedom to speak their minds, there is bound to be a tumult. Politicians seeking order, politeness, and decorum can find some fine examples in Japan's immediate neighborhood.

In the final analysis, I don't think Asō was longing for an end to democracy or outlining a secret plan for constitutional revision. Rather, he has once again revealed a fundamental fact about his and Abe's worldview: they have no problem stating their love for democracy as an abstract idea, a value to be promoted in East Asia and a rhetorical cudgel with which to bludgeon China, but they have little love for democracy as it is actually practiced in Japan.

Abe's underwhelming victory

noreply@blogger.com (Tobias Samuel Harris) — Sun, 21 Jul 2013 16:44:00 +0000

Abe Shinzō's LDP-led coalition with Komeitō got its wish Sunday, winning enough seats to retake control of the House of Councillors for the government and ending the "twisted" Diet for at least the next three years. With five seats still undecided, the LDP and Kōmeitō have secured 134 seats, comfortably over the majority threshold of 122 seats.

But it is difficult to declare Sunday's results an strong mandate for Abe and his program.

First, the LDP fell short of winning an outright majority. The LDP is once again the largest party in the HOC, but it will still need to secure the votes of Kōmeitō to pass legislation in the upper chamber. It is unclear what threats Kōmeitō can wield to modify the government's behavior — I doubt whether it can credibly threaten to leave the coalition — but since they wield the deciding votes in the HOC, they will be in a position to influence the government's agenda, which will likely have consequences for nuclear energy and constitution revision. One could argue that Kōmeitō was the real winner on Sunday.

Second, the pro-revision parties fell short of a supermajority. The pro-constitution revision parties needed to win at least 162 seats to be in a position to pass constitutional amendments in the HOC. Given that the pro-revision parties don't even share the same vision for the constitution, the road to revision is no less steep today than it was before the HOC election. That doesn't mean Abe won't try to cobble together some kind of revisionist alliance in the HOC, but I think the pattern I outlined in May will hold:

At the very least, we're probably seeing the emergence of what will likely be a persistent pattern should Abe remain in power. Abe and his lieutenants will talk about the need to revise the constitution, Kōmeitō will express its unease about revision, what's left of the left wing will sound the alarm, public opinion polls will reveal skepticism about revision, LDP grandees will suggest backing down...and rinse and repeat.

It is difficult to view the HOC election as public endorsement for a shift to the right.

Instead, we should view the HOC election as a sign that the Japanese political system is not "stable" or healthy. There is an emerging narrative that because the Abe government looks durable, the Japanese political system has achieved some stability after years of turmoil and ineffectual governments. Abe may well be in a position to last, although we won't really know until he actually has to make a controversial decision (about, say, TPP or nuclear power or the consumption tax). But the election returns suggest that these will be trying years for Japanese democracy. The DPJ has more or less imploded, and seemed to spend more time during the campaign fighting amongst itself than against the government. The Communists soaked up anti-Abe protest votes and won eight seats, including three district seats, but the ability to win protest votes does not necessarily make for an effective opposition party. As Michael Cucek noted before the election, none of the opposition parties has anything constructive to say about the problems facing Japan. Abenomics is winning public support at least in part because it's the only policy program on offer. Kōmeitō is basically left being the opposition-in-government. I think there are votes for a center-left program, but no party or leader has articulated one in simple, easily understood terms. Whether a coherent, effective large party can emerge from the DPJ's wreckage is one of the most important questions in Japanese politics in the years to come.

Finally, policy challenges remain. With control of both houses, Abe has no excuses. He cannot hide behind the "twisted Diet" any longer. He is going to have to deliver results and make decisions with the potential to trigger major public opposition. The media, of course, will be waiting to pounce at the first sign that the government is slipping — to say nothing of Abe's rivals within the LDP. The public is still opposed to nuclear restarts and is still opposed to raising the consumption tax next year. While the public as a whole supports Japanese participation in TPP, the LDP still includes an unwieldy mix of representatives from across the country, suggesting the possibility of a postal privatization-like confrontation between the urban and rural wings of the party.

In short, the HOC election was not nearly as transformative as it may seem. By failing to win an independent majority in the HOC, the LDP will continue to depend on Komeitō to pass legislation. But by winning a majority for the coalition, Abe will now be expected to use his political power to follow through on his pledge to revitalize Japan's economy — with the public, the media, and rivals within the LDP ready to turn on him should he falter.

Will nuclear restarts derail Abe? (Probably not.)

noreply@blogger.com (Tobias Samuel Harris) — Mon, 08 Jul 2013 03:01:00 +0000

Say what you will about the LDP, but the party has been fairly open about its preference for nuclear energy and restarting Japan's idled reactors as soon as possible.

The party may be about to get its wish.

On July 8th, four regional power companies will apply to the Nuclear Regulation Authority to begin compulsory inspections as a first step towards restarting their reactors. It will be months before the inspections will be concluded and plants reopened, but Monday appears to mark the beginning of the reintroduction of nuclear energy to Japan's energy mix in a significant way.

The NRA is central to the LDP's and Abe's soft-pedaling of the nuclear issue. Lest the Abe government be faced with this...

Source: Asahi Shimbun, Asia & Japan Watch, 30 June 2012

the LDP and the prime minister have repeatedly said that they will defer to the judgment of the authority when it comes to restarting reactors, including the pledge in the party's manifesto last year and again this year.

As long as the authority was not yet reviewing applications to restart reactors, deferring to the authority was an easy position to take. But now both the authority and the Abe government will be tested. For the NRA, it will be tested to show its independence from political decision makers, who have said they will respect the authority's decisions but have made no secret in wanting reactors put back online as soon as possible. For Abe, the pledge to defer to the NRA's judgment will be equally tested, especially if the authority rules against fast restarts for some reactors.

Perhaps the best outcome for both parties would be for some reactors to be restarted and others rejected for the time being, thereby allowing Abe to show his willingness to respect the NRA's decisions while still pocketing the political benefits of less dependence on imported energy. It might also defuse some of the political opposition — preventing demonstrations like those seen above, for example — by showing that the government really did defer to the regulators. It may also defuse some of the opposition from Komeito, the LDP's coalition partner. The latest Asahi polling, discussed here, shows that the public is still opposed to restarts by a considerable margin (29% in favor, 53% opposed), but the issue is a second-tier issue and it is by no means certain that Abe would face the kind of demonstrations his predecessors faced, especially if Abe can pass the buck for restarts to the NRA.

Meanwhile, by rejecting some applications for early restarts, the NRA could show its independence and demonstrate that it actually has some regulatory clout.

Mind you, it is beyond my expertise to say what the inspections actually will produce. (This NHK article [jp] has a decent rundown of the new regulations upon which inspections will be based.) But it does seem that, while the public is firmly opposed to restarts, there is a way for Abe to avoid taking a serious political blow from the nuclear question.

Pinpointing public support for Abenomics

noreply@blogger.com (Tobias Samuel Harris) — Sun, 07 Jul 2013 22:29:00 +0000

With the upper house election campaign in full swing — Michael Cucek has the campaign numbers breakdown here — there is no shortage of public opinion polling to wade through. Because the outcome of the election is more or less a foregone conclusion, not much of it is very interesting.

However, it is still worth looking at if only to understand how the public is evaluating Abe's performance and what their priorities are as the campaign trucks fan out across the country.

I've been paying particular attention to several questions in Asahi's national tracking poll pertaining to public assessment of Abe's economic policies. In addition to tracking the headline approval rating, I've been looking at one question which asks respondents to assess whether they approve of his economic policies (previously whether they believe Abenomics holds promise for growth), and another which asks whether they believe Abe's policies are linked to increases in wages and employment.

In the latest Asahi poll (jp), conducted a week after the previous one, public support for Abe's economic policies improved slightly, rising to 55% approval from 51%, and, more importantly, disapproval fell from 31% to 23%.

Source: Asahi Shimbun

Abe also saw a slight shift in his favor when it comes to whether the public believes his policies are connected to improvements in wages and employment.

Source: Asahi Shimbun

Finally, this latest poll introduced a new question, asking respondents which policy they would like to see debated more during the upper house election campaign. The poll is consistent with those dating back years: the public is most interested in economic growth and social security, followed by issues like the consumption tax and energy, and finally TPP, foreign policy, and the constitution.

Source: Asahi Shimbun, 7 July 2013

The fluctuations in support for Abenomics a few points one way or another probably don't mean much in the scheme of things, not least because last week's and this week's polls have had relatively small sample sizes compared to polls conducted earlier in the year. After getting responses from between 1500 and 2000 households for most of the year, the last two polls have had fewer than 1100 respondents (1039 last week and 1084 this week). By comparison, the June 11th poll that showed a twelve-point drop in support for Abe's economic policies had 1781 respondents. With approximately 51.8 million households in Japan, 1084 respondents gives us a margin of error of ± 3% at 95% confidence.

Thankfully, a Yomiuri poll (jp) in late June found nearly identical results with more respondents (1821) when it asked whether respondents approved or disapproved of Abenomics: 54% approval, 31% disapproval.

Thus we can say with a reasonable amount of confidence that public support for Abenomics remains at just above 50%.

That, ultimately, is the most important number to watch. Because public support for the Abe cabinet rests so much on public support for its policies in the areas that matter most to Japanese citizens, i.e. the health of the economy, as long as the public supports Abenomics, they will support Abe. At the same time, if and when the public turns against Abenomics, Abe will be in trouble to the extent that growing unpopularity will create space for critics within his own party to undermine his program.

At which point Abe will be pressed to show just how much he believes in the slogan he has lifted from Margaret Thatcher (jp): There Is No Alternative.

Public support for Abenomics cools slightly, but the LDP will win anyway

noreply@blogger.com (Tobias Samuel Harris) — Tue, 02 Jul 2013 23:48:00 +0000

With the campaign for the July 21st upper house election set to begin officially on Thursday, the Asahi Shimbun has released the results of its latest opinion polling on the Abe government.

The poll contains good news and bad news for Abe Shinzō.

The good news for the PM is that there remains no doubt that the LDP will win big. When asked who they will vote for in proportional representation voting — which elects forty-eight legislators from national lists — 44% said LDP, 7% each for the DPJ, JRP, and Your Party, Communists 5%, Komeito 4%, Socialists 3%, and People's Life 1%. Another 19% said they were still undecided. If we assume that the undecideds will break along the same lines as the decideds and that approximately 54 million votes will be cast in proportional balloting (roughly the number of votes cast in the 2007 and 2010 elections), the LDP will win twenty-nine seats, the DPJ, JRP, and YP four seats each, the JCP three seats, and Komeito and the Socialists two seats each.¹

To reach the UH majority threshold of 122 seats, the LDP will need to win forty-two of seventy-three district seats, which, given the above figures, should probably be doable. The DPJ happens to be defending forty-two seats, the beneficiaries of its 2007 victory over the Abe-led LDP. The party recognizes it will come nowhere close to that total and will run no more than a single candidate in each district. Reaching the two-thirds threshold of 162 seats, necessary for constitution revision, is probably out of reach, certainly for the LDP by itself since it would fall short even if it were to win all seventy-three district seats.

The bad news is that the Abe government's headline approval rating continues to head the wrong direction. His approval rating fell another four points, to 54%.

More significantly, the Japanese public is no more enthusiastic about Abenomics than it was in early June. In response to the question whether they approve of Abe's economic policies, 50% said yes, while 31% said no, virtually identical to last month. (Although this time the poll asked whether respondents approve or disapprove, whereas earlier polls asked whether they thought Abe's policies were promising for growth.) Meanwhile, there was a slight uptick in the percentage of respondents who did not believe that Abe's policies are linked to higher wages and employment, 48% compared to 32% who believe they are.

Meanwhile, when it comes to two of the biggest questions facing the Abe government — whether to restart nuclear reactors and whether to raise the consumption tax rate on schedule in April 2014 — the public remains firmly opposed to both. Only 29% support restarting the reactors, with 53% opposed, a slight decrease from last month, but without a corresponding increase in support. 51% of respondents said they opposed raising the consumption tax, with 37% in favor. The public also remains opposed to revising Article 96 of the constitution, with 47% opposed and 34% in favor.

There are a couple bright spots for Abe — nearly 50% approval of foreign and security policies, 50% in favor of Japanese participation in TPP —but on the whole the impression is that public excitement about Abenomics has cooled. The public will give Abe a majority in the Upper House this month, but the days of unbridled enthusiasm about the Abe program have passed. Perhaps that shouldn't be too surprising, given that recent economic gains may not have reached Japanese households yet. Abe's overall support numbers may get a bump from the election, but it is increasingly clear that the important number to watch are public attitudes to Abenomics, which seem to determine the strength of Abe's public support.

1 PR seats are apportioned using the D'Hondt method. I made these estimations using this calculator.^↩

The Japanese public's ingrained distrust of investor capitalism

noreply@blogger.com (Tobias Samuel Harris) — Wed, 26 Jun 2013 22:07:00 +0000

In the last part of this series of posts reviewing Japanese public opinion about economic policy during the "lost decades," I will explore public opinion polls regarding attitudes towards savings and investment and financial reform. Years of public opinion polls support what the Bank of Japan's data on Japan's Flow of Funds shows: since the bursting of the asset bubble, Japanese households do not show much interest in owning equities, to say nothing of more complex financial instruments. (The BOJ explains the components of each category of asset here; flow of funds data can be found here.)

Households are by no means the only actors whose investment decisions are worth examining — for example, markets are closely watching whether and how much Japanese pension funds will shift from bond holdings to equities or other assets — but the decisions made by households and the attitudes expressed by Japanese citizens in opinion polls are revealing when it comes to understanding how Japanese think about Japanese capitalism, the role of investing and shareholding, and the degree to which they have embraced (and will embrace) reforms to encourage more risk taking and competition in the Japanese economy.

By and large, Japanese households have been reluctant to embrace shareholder capitalism. Equities made up nearly a fifth of household assets at the peak of the asset bubble, but since then household shareholding has fallen dramatically, notwithstanding Japan's "Big Bang" financial reforms and other government efforts to encourage investment. Despite low interest rates on bank deposits, low yields on government bonds, and, as I have documented previously, persistent fears about the reliability of the public pension system, Japanese households have been extremely reluctant to move into higher-yielding assets. It is important to keep this reality in mind as one assesses the Abe government's likelihood of success in triggering sustainable growth; Abenomics has to change ingrained attitudes about saving and investment that have heretofore proved resistant to policy change and macroeconomic change.

Pollsters began taking more of an interest in Japanese attitudes regarding the financial sector in the late 1990s as the Hashimoto government implemented the "Big Bang" reforms, which deregulated foreign exchange and securities markets, the insurance industry, and the banking sector. The reforms were, among other things, supposed to make it easier for households to diversify their investments. However, a poll conducted by Asahi in March 1998 found respondents unsure of financial reform. Asked whether they were hopeful about the Japanese-style "Big Bang," only 32% said they were hopeful, while 43% said they felt great anxiety and other 21% said they didn't know. When asked whether they would try to purchase higher-risk, higher-return financial instruments if it became possible to do so, only 16% said they would — 80% said they would not. The same poll found that the public mostly wanted banks to pay higher interest rates on deposits: the poll found 26% of respondents were fine with low interest rates as they were, while 66% wanted interest rates raised.

Another Asahi poll in May 1998 found respondents more favorably disposed to the "Big Bang," but not by much. Asked whether they welcomed having the responsibility to choose from a variety of financial products and being forced to decide which are profitable and which are safe, 41% said they welcomed the responsibility, 38% did not, and 14% said they did not know yet. Respondents were slightly more open to purchasing assets that would yield more than bank deposits but would also be more riskier: 21% said they would like to purchase them, 72% said they would not.

Respondents appeared somewhat more open to having greater control over retirement funds through the introduction of a Japanese-style 401(k) system. A July 1999 Asahi poll asked whether respondents would accept the greater responsibility that would come with the introduction of a defined contribution pension program: respondents favored the notion 44% to 43%. Respondents also proved more favorably disposed to participating in a 401(k)-style program than to other forms of investment. 29% said they would like to participate, with 58% opposed.

The problem, however, is that over the following decade Japanese households have not become any more favorably disposed to investing than they were when financial reforms were first introduced. Asahi polls — one from March 1997 and the other from February 2006 — illustrate the inertia of Japanese households. When asked how their households were responding to low interest rates, in both polls at least 60% of respondents said "nothing in particular." In 1997, only 7% said they were moving deposits to more profitable investments like stocks and other financial instruments. In 2006, that figure rose only to 12%.

The February 2006 poll found scant interest in investing more in equities, let alone more complex instruments. When asked whether they wanted to invest in stocks, 11% said they already did, another 15% said they would like to, and an overwhelming 65% said they would not like to purchase stocks. On the one hand, 65% is better than the March and May 1998 polls that found 80% and 72% of respondents uninterested in purchasing higher-yielding assets. On the other hand, when one considers that nearly two-thirds of respondents in February 2006 — in the midst of low interest rates, concerns about the security of public pensions, and a stock market that would make five-year highs in 2006 — expressed no interest whatsoever in stock ownership, one gets a good picture of inertia in Japanese household assets.

The poll did ask respondents to explain their answers to that question. Among the 26% who said they either already invested or wanted to invest in stocks, 11% cited higher returns, 8% said they bought stocks because it had become easier to do so, 4% said because they thought it was interesting, and 1% said they did it in order to prepare for bank failures. Among the 65% who expressed no interest, 25% said they did not have enough money available, 17% said they feared losses, 12% said they felt it was difficult, and 5% said it was because stock investing "does not have a good image." The cautiousness of Japanese households was reinforced in the next question, which found that, if respondents were to invest, they would prefer financial instruments with relatively lower returns but with low risk of loss to higher risk, higher return instruments by a margin of 54% to 5%.

Finally, the poll asked an interesting question to gauge general attitudes about stocks and investing. Asked whether they thought it would be good to learn about stocks and investing from elementary and middle school onward, 29% said yes, 61% said no. Another question asked whether respondents felt opposition to making large profits by speculatively investing great sums of money in the stock market and elsewhere: 48% said they were opposed, 40% said they were not. Arguably these responses are clear indicators of the degree to which investing was still considered abnormal, perhaps even unseemly. Not only did a sizable majority of respondents not want to own stock, they did not want their children learning about the stock market and they felt there to be something illegitimate about fortunes made through speculative investments. And this poll was conducted several years before Japan would be dragged back into recession by the global financial crisis, which, as then-Prime Minister Asō Tarō repeatedly reminded his fellow Japanese, "originated from America" (i.e., home of Wall Street's casino capitalism).

A Cabinet Office poll conducted (jp) in December 2005 confirms this aversion to financial investing. 71.9% of respondents said they owned no securities whatsoever. Among those who owned securities, the most commonly held security was stocks (15.9%), followed by investment trusts and mutual funds (9.1%), national or local government bonds (7.7%), foreign securities (3.4%), bank and financial bonds (2.0%), industrial bonds (1.3%), and derivatives (.2%). The survey also asked whether respondents owned, wanted to own, did not want to own stocks, or own stocks but want to stop. These figures are similar to the February 2006 Asahi poll: 13.3% owned stocks and wanted to continue, 8.6% wanted to start investing, 2.7% wanted to quit, and 68.5% had no interest at all. Respondents' reasons were similar too. Among investors or would-be investors, 48.3% said they invested because they hoped for higher returns, 45.6% said they hoped for dividends, and 31.2% said they wanted to invest their money beyond bank deposits. Among non-investors, 39% said they lacked the knowledge, 36.9% said they feared the risk of losses from falling prices, and 34.5% said they lacked the assets and income with which to invest.

Another Cabinet Office poll, conducted in May 2007 (jp), asked questions about investing in regard to the first Abe government's "From savings to investment" program. Eighteen months after the previous Cabinet Office poll respondents were if anything even less favorably disposed to investing. After asking whether respondents had heard of the program (most knew nothing about it), the survey asked respondents why people preferred savings deposits over other investments:

52.3% said it was because they felt secure entrusting their money to banks and post offices.
43.3% said it was because of the possibility of losing one's investment despite the possibility of profit.
40.2% said it was because they did not know enough about stocks and other investments.
32.2% said they did not know which stocks are good to purchase.
28.4% said it was because they felt a great lack of confidence in securities firms and securities markets.

Asked how the government could promote investment, respondents were less clear:

41.4% said to prepare a system to protect individual investors, strengthen explanations of the contents of financial products and their risks.
38.1% said strengthen market supervision.
26.9% said to reduce the tax burden for holding and trading stocks.
25.5% said to simplify tax payment procedures.
17.4% said to make it possible to buy stocks and other financial vehicles in various places.
11.5% said to promote financial education.

By May 2007, a marginally greater number of respondents said they owned no securities whatsoever and ownership rates fell in every category except investment trusts and mutual funds and foreign securities, which were held by the same share of respondents.

Respondents were, if anything, even less inclined to invest than before. 77.1% of respondents said they either did not plan to invest in stocks (74.1%) or owned stocks but planned to quit (3%). Only 18.6% said they owned stocks and wanted to continue (11.3%) or didn't own but wanted to (7.3%). Not surprisingly, respondents were even less favorably disposed to investment trusts: 78.8% said they either had no plans to invest (76.9%) or wanted to stop (1.9%), while only 14.9% said they owned trusts (8%) or wanted to (6.9%). Interestingly, when the respondents who said they wanted to or wanted to continue to own stocks were asked why, the reasoning changed a bit from the December 2005 poll. Now 46.9% said they wanted to because of the promise of dividend payments, followed by 39.8% who said they wanted to hold stock because of the promise of gains from rising prices and 33.9% who said they wanted to diversify beyond bank deposits. Fewer said they wanted to prepare for retirement (20.2%) or to invest retirement money more effectively (10.9%). Only 3.1% said they did so because they belonged to a defined-contribution pension plan (which had been passed into law by the Koizumi government in 2001).

In short, on the eve of the global financial crisis, only approximately one in ten Japanese households owned stocks, and nearly eight out of ten households had no plans to purchase stocks. Knowledge about and desire to own other financial instruments was considerably lower. Unfortunately, I have thus far been unable to find opinion polls regarding attitudes towards investing conducted after the global financial crisis. However, as the BOJ data cited above shows, since 2008 stocks as a share of total household assets have remained consistently below 10% after a brief spike during the latter part of the Koizumi era. Considering the reasons given by Japanese for not wanting to invest, it is hard to believe that their attitudes towards financial markets have changed dramatically. It is similarly hard to believe that recent volatility in the markets will lead more Japanese households to invest.

It is therefore important to remember, in the midst of enthusiasm about Abenomics, that the Japanese public has repeatedly showed itself to be risk averse in its investments and deeply reluctant to shift from virtually risk-free bank deposits to other financial assets. Despite — or because of — their fears about the pension system, Japanese households have not sought higher yields. As a result, Japanese households by and large have not directly benefited from stock market gains under the second Abe government (and, as I've discussed before, they have probably not been the direct beneficiaries of the weak yen). This is not to declare Abenomics a failure, but rather to provide a fuller accounting of the obstacles the Abe government must overcome to succeed in its bid to trigger sustainable growth. Maybe this time will be different than in the past, but for now Japanese households do not seem poised to become more active (or activist) investors.

The Japanese public's enduring anxiety about social security

noreply@blogger.com (Tobias Samuel Harris) — Mon, 24 Jun 2013 20:59:00 +0000

Even as the Japanese people confronted slow growth and considered whether the longstanding institutions of Japanese capitalism would be able to guarantee prosperity in the future, they faced the prospect of an aging, shrinking population and worried about the stability of Japan's social security system. As baby boomers retire, Japanese society, like other developed societies, has become increasingly worried about whether the government would be able to meet its obligations to provide social insurance, pensions, welfare and poverty relief, and eldercare.

One has to wonder about the extent to which anxiety about Japan's social safety net has influenced household decisions about consumption, savings, and investment and their appetite for higher risk, higher yield assets during the "lost decades." The question is whether public anxiety about Japan's social safety net has depressed aggregate demand beyond the basic effects of too few Japanese chasing too many goods as argued by Edward Hugh. Arguably, the DPJ's program while in government (at least for the first year or two) was implicitly based on the notion that reducing insecurity about the safety net could yield macroeconomic benefits.

In this post, I will document the persistence of public fears about the social security system during the lost decades. Since at least the late 1990s, anxiety about the stability of the future of social security has regularly ranked at or near the top of the public's priorities in economic policy, which remains the case today. Any discussion of the impact of Abenomics on the economic behavior of Japanese households has to weigh Japanese attitudes about the social safety net. If Abe is unable to ease fears about the government's ability to provide for retirees, any gains to Japan's economic performance could prove short lived.

We can see these fears about the safety net as early as 1997. A March 1997 Asahi poll asked respondents whether they felt some anxiety about their future livelihoods. 69% said they said, versus 29% who said they did not. When those 69% were asked to explain what they were anxious about, the most common response was pensions and social security (30%). Only one other reply — "my personal health" — was in the double digits (11%). The same poll asked respondents to state the degree to which they felt confident in the future of public pensions systems. 42% expressed either great (5%) or some (37%) confidence, while 55% expressed either little (44%) or no (11%) confidence.

The next year an Asahi poll found that more respondents were most uneasy about pensions and social security (30%) than about Japan's economic outlook (28%), their incomes (20%), or their jobs (13%).

Perhaps the clearest picture of public insecurity in the late 1990s can be found in an extensive July 1999 poll on questions related to Japan's aging society. The poll was based on face-to-face interviews with 2122 respondents nationwide, marginally more than Asahi's monthly telephone polls, which usually have between 1500 and 2000 respondents.

The survey paints a portrait of wide and growing anxiety among the Japanese public about life after retirement. Asked if there is anything in particular they feel uneasy about for their retirement, 28% of respondents said they were most uneasy about living expenses and other economic concerns, the most popular choice and an increase of six points over a 1994 poll on aging issues. Even more dramatic was the finding that 85% of respondents did not believe that contemporary Japan provided for a secure retirement. The survey found the public was concerned about the "fairness" of the social security system (23% thought it fair, 68% did not); was nearly evenly divided over who should bear the burden of higher medical costs as a result of aging (25% said to make the generations currently working pay more in premiums, 32% said the elderly should pay more in premiums and fees, and 28% said that all should pay more through a consumption tax hike); and believed that most attention should be paid to pensions as opposed to health insurance or nursing care insurance. The same poll found that when asked whether they expect the state pension system to provide for them, roughly two out of three respondents either greatly (33%) or to some extent (32%) said they counted on their state pensions.

As Japan's stagnation deepened, the public focused more on economic policy than on the safety net, and public opinion polls reflected shifting priorities. Polls during the Koizumi years simply did not ask questions about welfare, social security, or pensions. It was almost as if through his frenetic activity in other policy areas Koizumi Junichirō made the Japanese public (and the Japanese media) forget about Japan's aging society and safety net anxieties.

However, when polls did ask the public to assess the Koizumi government's social security policies, the response was not favorable. For example, in an April 2004 poll concerning Koizumi's first three years in office, 67% of respondents said they did not approve of Koizumi's pension reforms.

By fall 2004, anxiety about the social safety net had returned to the top of the public's concerns. Asked in September what they would like the recently reshuffled Koizumi cabinet to make its top priority, 52% said pensions and welfare, topping all other choices by a considerable margin, including jobs and growth (28%). By December, dissatisfaction with the Koizumi government's handling of pensions grew, with 76% disapproval (and only 13% approval).

Of course, postal privatization dominated public discourse for the bulk of 2005, but public concerns about the pension system did not vanish: a poll taken in November 2005, after Koizumi's landslide victory in September and another cabinet reshuffle, found that 56% wanted the government to make pensions and welfare its top priority, with jobs and growth policy in second place with only 17%.

Koizumi effectively bequeathed to his successors a public hungry for the government to fix the social safety net. Polling in advance of the 2006 LDP leadership election repeatedly showed that voters wanted the election to focus on social security. For example, in January 2006, 45% of respondents said the campaign should center on "how pensions and health care ought to be," followed by 28% of respondents who wanted it to center on fiscal reconstruction and taxation. In September, after Abe Shinzō became prime minister for the first time, 43% of respondents said Abe should make pensions and welfare reform his top priority, with growth and jobs in second place with 17%. (And only 2% wanted Abe to focus on revising the constitution.) Abe, of course, suffered a crippling blow with the emergence of the "vanishing pension records" scandal, in which it was discovered that due to carelessness on the part of the Social Insurance Agency the pensions records of up to 50 million people may have been missing data. The scandal served only to heighten preexisting public fears that the social security system was not in fact secure, and ensured that it would remain a critical issue for the government to address.

The global financial crisis changed the public's priorities — but not as much as one might expect. A poll published on September 12, 2008, three days before Lehman Brothers went bankrupt, found that 40% of respondents wanted the government to focus on the economy and government finances, while 37% wanted the government to make pensions and social security its top priority. Despite the latest downturn, reforming the social security system remained high on the public agenda, especially after the DPJ took power in 2009 and appointed Nagatsuma Akira, the parliamentarian who challenged Abe on the missing pensions scandal, minister of health, labor, and welfare. Under the Kan government, social security reform became tied up with the consumption tax issue, as Kan Naoto fought to tie consumption tax revenue to social security funding, which Noda Yoshihiko ultimately succeeded at doing in 2012. A February 2011 poll actually found public support for this version of the consumption tax increase: 53% agreed with a consumption tax increase in order to secure social security funding, with only 35% opposed. (The same poll found that if asked if they support a consumption tax increase with no tie to social security, 46% were in favor and 45% opposed.)

Noda obviously struggled to make his case to the Japanese people but it was not for a lack of concern on the part of the public. In late August 2012, after the tax increase had passed both houses of the Diet, an Asahi poll found when asked how confident they were in the social security system, 64% of respondents expressed not much (47%) or no (17%) confidence in the system, compared with 35% who had full (3%) or some (32%) confidence in the system. The same poll found the public evenly divided (43% in favor versus 43% opposed) over the idea of shifting resources from spending on the elderly to spending on child care and strongly opposed (60% opposed versus 31% in favor) to charging citizens over 70 more in fees for health care.

For the moment the social safety net is once again second to economic policy in the priorities of the Japanese public. But if the Japanese people have had a constant concern over the past fifteen-twenty years, that concern is the viability of Japan's social safety net. As Koizumi discovered, if and when the economy improves, concerns over social security are bound to grow — and as Abe learned during his first government, those fears can prove fatal to a government. It is not entirely clear what the Japanese public expects their government to do to strengthen the social safety net, since support for tax increases to bolster social spending has proven so fragile. There may ultimately be nothing the government can do to reduce anxiety about the strength of the social security system. In an aging society public anxiety about the soundness of the safety net — particularly in an age of high budget deficits — may simply be an enduring fact of politics. Abe may have bought himself a temporary reprieve, but sooner or later public attention will turn back to the social security question.

The next post and the last in this series will look at public opinion polling on attitudes towards saving and investment, an important indicator of 1) how much risk Japanese households will tolerate, 2) how eager Japanese households are to participate in new-style shareholder capitalism, 3) how much households are benefiting from the Abenomics boom, and 4) the degree to which Japanese depend on the social safety net for their retirement living expenses.

The Japanese public weighs structural reform

noreply@blogger.com (Tobias Samuel Harris) — Fri, 21 Jun 2013 18:22:00 +0000

In my last post I discussed public opinion regarding fiscal stimulus, fiscal reconstruction, and the role of the state. In this post, I'll look at public opinion concerning the behavior of Japanese companies, labor market practices, and the role of the government in promoting microeconomic or supply-side changes in the Japanese economy as a means of promoting growth (i.e. structural reform).

Policymakers and the media were already discussing structural reform before Japan's asset bubble burst in 1991, most notably in the Maekawa Report, produced by an advisory council to Prime Minister Nakasone Yasuhiro headed by Maekawa Haruo, former president of the Bank of Japan, in 1986. But it was only after the bubble burst that the idea of significant reforms to the Japanese economy gained political traction, especially under the leadership of Prime Minister Hashimoto Ryutarō.

At a basic level, the Japanese public appeared to accept the idea that some type of structural reform is necessary if Japan is to remain prosperous in the future. In March 1997, before the wave of bankruptcies that would rock Japan's financial sector later that year, 72% of respondents said they thought "bold reform" was necessary, with only 19% disagreeing (and 9% not responding).

The public had largely embraced the arguments being made by Hashimoto and other political leaders: the Japanese economy needed to change. Japanese citizens did not just embrace the need for reform, they accepted that the government should take the lead in promoting reform. When asked by Asahi in May 1998 whether structural reform should be a government effort or a private-sector effort, 54% said government, with only 25% opting for the private sector (and another 21% not answering).

However, once the details of structural reform became apparent the Japanese public was more ambivalent. On the one hand, survey respondents accepted that structural reform should make Japan more liberal. Asked in a May 1998 poll which direction they thought Japan should head, 51% said it should aim for a "free competition" society that encourages ambition and talent, compared with 37% who said it should aim for an equal society with few disparities of wealth. When asked in the same poll whether decisions about pay should emphasize age and time of service or abilities and achievements, 70% said abilities and achievements and only 19% said seniority. On the other hand, the same poll find the public was divided over significant reforms to Japan's labor practices. Asked whether they supported hastening the pace of structural reform even if it meant job losses through corporate restructuring, respondents were evenly divided with 42% in favor and 41% opposed. Similarly, when asked whether they favored a society with lifetime employment or a society in which people change jobs, 53% favored lifetime employment, compared to 33% who favored job switching. In short, it seems as if the idea of a society in which individuals succeed or fail based on merit appealed to the Japanese public but not the steps the Japanese state would have to take in order to create such a society.

The public was no less divided when Koizumi Junichirō became prime minister in 2001, declaring there would be "no growth without structural reform" and that he would pursue "structural reform without sanctuary." As before, the public accepted the idea of structural reform in the abstract, with support over 70% throughout Koizumi's first year in office. (Although at the outset of the Koizumi government, the public was unclear what exactly Koizumi meant by reform: in late May 2001, only 23% were clear about what reforms Koizumi intended to implement, with 68% were unclear.)

However, from August 2001 the Japanese public soured on Koizumi's version of structural reform. Asked whether they were confident in structural reform, 52% felt uneasy about it, compared with 37% who felt confident. Asked whether they felt structural reform should continue, 44% favored it compared with 40% opposed, but when asked whether structural reform should take precedence over policies aimed at bolstering the economy, 56% said economic policies should take precedence compared with only 35% who felt structural reform should be the first priority. Similarly, for the first time a plurality (44% over 40%) opposed the Koizumi government’s program for disposing of bad loans.

At no point during the Koizumi government did the public support structural reform’s taking precedence over policies to revitalize the Japanese economy and create jobs. At the same time, when asked to name what was good and bad about the Koizumi government, the government’s economic policies were consistently rated as its worst feature. By late 2002, 50% of respondents cited macroeconomic policies as the worst feature of the Koizumi government for three straight months. It was not until April 2006, during Koizumi’s victory lap, that another policy area (foreign and security policy) passed macroeconomic policies as the least favored feature of the Koizumi government.

As noted in my previous post, the Japanese public was favorably disposed to structural reform directed at the public sector, since public-sector reforms were aimed at wasteful spending and corrupt practices. But during the Koizumi era, the Japanese public did not appear to have much appetite for labor market reforms or other reforms to promote more flexibility or competition in the private sector.

One can in fact argue that Koizumi exhausted public support for reforms that would create a more liberal Japanese economy. By the end of his tenure, the public began to express fears of growing inequality, and a majority believed, as a February 2006 Asahi poll found, that Japanese society was dividing into winners and losers based on whether or not one had money. At first, Japanese citizens did not hold Koizumi responsible for growing inequality, but by August 2006, Koizumi's last full month in office, 62% believed his policies were responsible, with only 30% saying that they were not.

Accordingly, as voters looked to the post-Koizumi period they hoped Koizumi’s successors would act differently. A June 2006 poll asked respondents whether they thought structural reform should continue: only 17% said it should continue unchanged, while 54% said it should continue but with different methods and 23% said the government should change directions entirely, a sentiment confirmed by a July 2006 poll that found that voters wanted the next prime minister to be a leader who listens to the opinions of others (67%) instead of making decisions based on his own thinking alone (28%). The same poll said the top priorities for the next prime minister should be addressing Japan’s aging, shrinking population problem (24%) and economic inequality (23%), followed by economic policy (18%) and fiscal reconstruction (16%).

One gets the distinct sense that by the end of the Koizumi period the Japanese people wanted a kinder, gentler politics and a more equitable, caring society. However much they supported Koizumi personally, they were not won over to his brand of Anglo-American neo-liberalism.

Polls in the post-Koizumi era show a reluctance on the part of the Japanese public to support significant changes to the surviving institutions of postwar capitalism. At the same time, the public was not eager to reverse changes wrought by Koizumi and his predecessors. For example, perhaps the biggest change in the Japanese labor market during the late 1990s and 2000s was the growing dependence of Japanese industry on non-regular and temporary workers who enjoyed little to no job security and few benefits. Many of these employees are women: at least half of women in the workforce are in non-regular positions, as suggested by this report (jp).

However, the Japanese public did not express a desire to change the laws that made the rise of non-regular employment possible. For example, when asked in January 2009 whether the use of temporary workers in manufacturing should be banned — a proposal that was included in the DPJ's manifesto later that year — only 30% of respondents supported such a ban, while 46% opposed one. Instead, the Japanese public wanted to protect the status of core workers, even if it meant the seemingly irreversible rise of non-regular employment, especially among Japan's young. A poll in February 2009 found that when asked whether the status of regular workers should be lowered in order to close the gap between regular and non-regular workers, only 32% agreed, 51% opposed. As in other industrial democracies that have seen the emergence of a dual labor force, privileged workers would prefer to retain their privileges (and jobs) even at the expense of non-regular workers. Protecting the status of secure jobs took precedence over other factors. For instance, when asked in a February 2009 poll whether firms should focus on protecting profits versus protecting employment, 69% said employment and only 20% said profits. The same poll found respondents willing to embrace work sharing — working fewer hours (with reduced pay), so that their employers could retain workers — by a margin of 68% to 19%.

Perhaps we should not be surprised that the Abe government's structural reforms — the third arrow of Abenomics — announced earlier this month proved to be so timid, especially when it comes to Japan's labor market. Whatever desire the Japanese people once had for structural reform appears to have dissipated. The prevailing sentiment now seems to be protecting the privileged status of regular workers, even if it means a growing population of non-regular workers with poor career prospects. If Prime Minister Abe were to propose bolder labor market reforms, one should expect considerable public opposition.

The next post will shift to attitudes about Japan's social safety net, looking especially at public dissatisfaction with the stability of the social security system.

Fiscal policy in the eyes of the Japanese public

noreply@blogger.com (Tobias Samuel Harris) — Fri, 21 Jun 2013 02:10:00 +0000

It increasingly seems that if Abe Shinzō is going to remain in office, he will need to retain the approval of the Japanese public, and that if he is going to retain the approval of the Japanese public, the Japanese public will need to reap some of the benefits from the purported revival of economic activity. But beyond the basic question of whether or not Japan is growing and whether the benefits of growth there are larger questions about the future of Japanese capitalism. Will Japanese companies focus more on shareholder value and profit maximization instead of protecting jobs, preserving relationships with contractors, and prioritizing bank financing over equity financing? Will individuals embrace unconventional career paths, less on-the-job training, more mid-career job changes, more control over pensions and personal investments, with the risks that all of these changes entail? Does the Japanese public believe that the pillars of Japanese capitalism should change?

Of course, opinion polls can only reveal so much and suffer from flaws that undermine their validity — and public officials are free to ignore the preferences of the Japanese public in pursuit of their goals. But polls can provide hints as to how the Japanese public will respond to government policies or market developments.

In a series of posts over the coming days, I will review public opinion polls dating as far back as 1993 to assess Japanese attitudes to government spending, deficits, and fiscal retrenchment; structural reform; the social security system; and saving, investment, and the financial sector.

Fiscal stimulus, fiscal retrenchment, and the state: If there is one fundamental fact concerning Japanese public opinion about economic policy during the "lost decades," it's that, while recognizing the need for fiscal stimulus the Japanese people are ambivalent when it comes to how the government should pay for it. For example, in September 1993, early in the first lost decade, 80% of respondents in an Asahi poll said they wanted the government to cut income taxes as soon as possible, with only 11% in disagreement. However, when asked whether the government should issue deficit bonds to pay for tax cuts, only 23% agreed, with 55% opposed.

The same ambivalence has appeared repeatedly over the past twenty years.

In March 2000, an Asahi poll asked whether issuing new bonds to pay for economic stimulus was “unavoidable” or whether the time was coming to reduce borrowing and fix the country’s finances: only 17% of respondents supported the former proposition, while 77% supported the latter.

The percentages were roughly the same in response to that question in December 2000 and February 2001 — despite a July poll finding that 47% felt the Mori government should focus first on economic stimulus, compared to only 18% who felt it should put fiscal reconstruction first.
The public was often dubious about structural reform under the Koizumi government (more on this in a bit), but was overwhelmingly supportive of structural reform when it came in the form of public spending cuts or restructuring (or privatizing) public corporations. For example, the public favored a 10% cut in public works spending in the 2002 budget, with 52% in support and only 37% opposed. When asked in December 2002 whether the government should build more roads, 64% opposed the notion with only 24% in favor. The public also went from neatly divided on postal reform to decidedly in favor of the reform that was Koizumi’s pet project.
As the Aso government coped with the global financial crisis in 2008-2009, the public signalled that it favored focusing on economic growth instead of fiscal reconstruction. However, as before, the public was overwhelmingly opposed to financing stimulus through deficit bonds. An October 2008 Asahi poll found only 24% of respondents in favor of paying for stimulus with deficit bonds, compared to 56% opposed.
The DPJ encountered the same ambivalence. The public once again wanted the government to focus on stimulus, but when asked in January 2010 whether they approved of the Hatoyama government's having to undertake the largest deficit bond issuance to date to cover its budget, 69% of respondents were largely or completely opposed, with only 1% giving their full approval and 35% giving partial approval.
While commentators usually attribute the persistent campaign for a consumption tax increase to the ministry of finance, the public has at various times signalled its willingness to support a higher tax rate, perhaps because of long-term uneasiness about the state of the government's finances. The Japanese public may be open to the idea, but whether it supports a particular plan depends entirely on the details (the timing, the size of the increase, the state of the economy, how new revenue will be used, etc.). There is, of course, a lesson for the Abe government as it decides whether to proceed with the plan to raise the consumption tax to 8% next April and 10% in October 2015.

The Japanese people remain ambivalent about government finances. In August 2012, Asahi found that 62% of respondents felt that Japan's fiscal situation is very serious, with another 32% who said it is somewhat serious. At the same time, however, 90% of respondents said that growth and jobs would be very important (53%) or somewhat important (37%) for deciding how to vote in the next general election, making it the most important issue for voters.
Abe has not been exempt from the public's ambivalence. A poll in January found 49% approval for fiscal stimulus based on public works projects, but when asked whether they thought it was good that stimulus spending would be funded by deficit bonds, only 22% agreed while 65% did not.

As the above data suggest, the Japanese people have indicated that they want the Japanese government to focus on economic growth and jobs, but they have consistently opposed the use of deficit spending to pay for economic stimulus. The Japanese public is not, however, opposed to the state's providing social security, economic stimulus, or support for business using public funds. Public support for the former policies is consistently strong, and regarding the last point, during Abe's first government, Asahi found 49% support for Abe's emphasis on support for businesses as part of his growth policies, with only 33% opposed. In theory, the public may also be willing to support higher taxes. A March 2010 Asahi poll asked respondents about the kind of society they wanted Japan to be. Most preferred a high tax, high welfare society: only 10% were absolutely in favor, but 55% opted for "if I had to say, high tax, high welfare." Only 23% said "if I had to say, low tax, low welfare" and only 6% were absolutely in favor of low taxes and low welfare. Similarly, when asked whether it was better to strengthen or weaken progressive taxation, 38% said it should be strengthened, with another 45% opting for "if I had to say, strengthen it." Only 13% said it should be weakened.

Given that Japan's central government has consistently been at or near the bottom of the G7 countries in terms of tax revenues, there's certainly room for the government to collect more, but as with the consumption tax, whether the public will support higher taxes depends entirely on the details: which taxes are being raised, how much they're being raised by, and, most importantly, how the new revenue will be used. Perhaps the public's opposition to public works for most of the 2000s and its longstanding opposition to deficit bonds ultimately stem from skepticism about what the government promises to do resulting from seeing government after government fail to end Japan's economic stagnation. In that sense, the public's enthusiasm for Abenomics looks that much more remarkable.

The next post will shift from thinking about how the Japanese public wants the government to tax and spend to thinking about what the public wants the Japanese private sector to look like, how they think companies should act, and what they think of structural reforms to change the face of Japanese capitalism.

Waiting for trickle down

noreply@blogger.com (Tobias Samuel Harris) — Wed, 19 Jun 2013 17:38:00 +0000

Another day, another round of statistics to parse in an attempt to determine whether or not Abenomics is working. The latest are Japan's trade figures, which found that Japanese exports in May yielded 10% more than in May 2012, although the volume of exports fell for the twelfth straight month. The spike in export earnings, however, was matched by a $10 billion trade deficit for May.

What does this all mean for the average Japanese household? Unfortunately, for now, it seems not much.

As Jonathan Soble concludes in the Financial Times:

The prime minister is counting on exporters to divert at least part of their expanded earnings to wage increases and investment in factories and equipment.

But the continued decline in the physical volume of exports has given companies little reason to bulk up their domestic operations, since they do not need new factories if they are exporting fewer goods, even if those goods are earning more yen.

Thus far, Japanese corporations are still hoarding their profits, holding record amounts of liquid assets according to a Bloomberg report by Toru Fujioka and Mio Coxon. Hence the periodic exhortations by Abe and other government officials encouraging companies to invest more and pay more.

The flip side of higher-than-expected export earnings is higher costs for domestic producers and households dependent upon imported energy, raw materials, and foodstuffs, as Bloomberg's Jacob Adelman and Ichiro Suzuki reported recently. The Finance Ministry's trade report for May (jp) shows just what Japanese are paying more to import. May's 10% increase in the value of exports was matched by a 10% increase in the value of imports. The report breaks down both figures by the contribution of different categories of product to the total figure. In May, Japanese importers paid:

12.3% more for foodstuffs than in May 2012 (including 37.2% more for grains).
20% more for raw materials including timber (59% more), non-ferrous metal ores, iron ore, and soybeans (38.7%).
2.7% more for fuels, although that may reflect the fact that imports of coal, liquified natural gas, and liquefied petroleum all dropped by significant margins, and despite importing 9.8% less LNG than in May 2012, Japan paid 8.2% more for what it imported. Japan also spent 6.4% more on crude oil imports even though it only imported .7% more.
8.7% more for chemical products.
6.7% more for intermediary goods like steel and other metal products.
10.7% more for general machinery.
23.7% more for electronics and electrical equipment, including 35.6% more for semiconductors and 58.6% more for communications devices.
14.3% more for transportation equipment.
12.2% more for miscellaneous products, including scientific instruments, clothes, furniture, and the like.

Of the 10% increase in the cost of imports, MOF's report suggests that at least 40% comes from costlier food, raw materials, and intermediate goods like steel, and fuel. If we assume that "communications devices" refers mostly to mobile phones and other personal electronics, consumer goods may account for 25% of the increase in import costs, with the remaining third going largely to capital equipment. Although we won't know for sure until we see the May industrial production data, it does seem that Japanese producers are paying more for imported inputs but not producing or exporting more goods. And if imported inputs cost more, it seems unlikely that Japanese producers will at the same time pay their workers more. In particular, if small producers find their production costs rise without a corresponding increase in profits, it is hard to see how their workers and therefore Japan's consumers will benefit from a weaker yen.

Because, after all, the firms that employ the majority of Japanese workers earn less from exports than the large corporations. According to the government's 2012 economic census (jp) roughly 50% of workers are employed by companies employing fewer than thirty people, and 70% of workers are employed by companies employing fewer than 100 people. Only 15% of the workforce are employed by the large corporations that benefit most from the weaker yen. According to data provided (jp) by the Small- and Medium-Sized Enterprises Agency at the Ministry of Economy, Trade, and Industry (METI), in 2012, those large corporations earned just shy of 40% of export earnings, compared to the 15% earned by small- and medium-sized enterprises (SMEs) employing fewer than 300 workers. The remainder and largest share went to corporations composed of small and large firms.

Not only are Japanese workers unlikely to reap the benefits of greater earnings from exports, but they are in all likelihood paying more for food, since, after all, Japan only produces around 40% of its food supply, and is almost completely dependent on imports for wheat and beans (hence the sharp increase in outlays for grain and soybean imports). Perhaps the Japanese diet will change over time to include more foods in which Japan is relatively self-sufficient — especially rice — but in the meantime, Japan's low rate of self-sufficiency in food production will not just contribute to trade deficits but, more importantly, will pinch household finances.

In short, the latest trade data confirms what the latest public opinion data suggests, namely that most Japanese have not personally experienced the Abe recovery. Until the big companies invest more, employ more, and pay more, Abenomics cannot be said to be working for the average Japanese household, whatever the headline figures say.

How long will the Japanese people support Abe (and Abenomics)?

noreply@blogger.com (Tobias Samuel Harris) — Fri, 14 Jun 2013 22:12:00 +0000

The most remarkable contrast between Abe Shinzō's tumultuous first term as prime minister in 2006-2007 and his current term is the degree to which Abe has been able to rely on significant public support. By this time in his first government — approximately five-and-a-half months after his inauguration — Abe's disapproval rating had surpassed his approval rating and would remain that way en route to defeat in the upper house election in July and resignation in September.

This time around his support has remained buoyant: in the latest round of poll his approval rating is 67% in Yomiuri (jp), 62% in NHK (jp), and 59% in Asahi (jp). The reason for Abe's popularity is apparent. The Japanese public has embraced Abenomics.

As the data from Asahi's monthly polls shows, Abe's popularity overwhelmingly rests on the popularity of his policy program. The Japanese people did not suddenly fall in love with Abe or the LDP in December 2012, but rather responded with enthusiasm when presented with a government that appeared to be serious about overcoming Japan's prolonged economic stagnation. Arguably, Abe has also benefited from lowered expectations, thanks to the poor performance of his DPJ and LDP predecessors, who struggled both to articulate and to execute policies to revitalize and reform Japan's economy. Support for Abe and Abenomics seems to be based less on calculations about the virtues of the "three arrows" when it comes to improving economic conditions and making life better for Japanese households than a kind of naive optimism that the government is working. As Asahi's monthly poll has shown, respondents have wavered when it comes to their belief that Abenomics will result in higher wages and more hiring.

Simply put, the Japanese public seems willing to give Abe the benefit of the doubt.

It bears asking, however, how patient the Japanese people will be. Asahi's June poll contained some hints that the public is beginning to lose faith in Abe's program. When asked whether they believed that Abe's economic policies "hold promise for growth in the Japanese economy," only 51% of respondents said they did, which, while still a majority, is the lowest number since January, when the Japanese people were still figuring out what the Abe government planned to do. In the same poll, when asked whether they've personally felt economic recovery since the outset of the Abe cabinet, only 18% said they had, as opposed to 78% who said they had not. Obviously a sizable portion of the latter are still optimistic that Abenomics will result in recovery, but there does seem to be growing doubts about the efficacy of the Abe government's policies.

The next month may be particularly challenging for Abe. Abe and the LDP are kicking off campaigns for Tokyo assembly elections and next month's upper house elections in the wake of volatile market activity that has raised questions about the efficacy of Abe's policies. But more importantly, during the campaign the Japanese public will probably hear more criticism of Abenomics than during the first six months of the second Abe government. The DPJ may be unable to prevent the LDP from winning a majority in the upper house, but if they hammer Abenomics every day, across the country from now until the election they may sow more doubt among the Japanese people, which, if combined with more market volatility, could seriously undermine Abe's public support. Abe could win the election and still see his approval rating erode. For this reason, perhaps the LDP is right to be worried, as this Asahi article (jp) suggests some members are. Because as Abe's support erodes, the likelihood of intra-LDP turmoil and jockeying for position by potential rivals increases, which could force Abe to change course in the fall as he tries to get pieces of his growth strategy through the Diet.

Everything, in short, depends on retaining strong public support, which in turn depends on Abe's policies delivering tangible results. And if tangible results aren't possible, as some skeptics suggest? Then the Abe government may be shorter lived than seems possible now.

The US and the history wars in Asia

noreply@blogger.com (Tobias Samuel Harris) — Fri, 14 Jun 2013 14:10:00 +0000

Jeffrey Bader, former senior director for Asia at the National Security Council earlier in the Obama administration, has drawn attention for remarks criticizing comments made by Abe Shinzō and other Japanese leaders about Japan's wartime past. As Kyodo reports:

Bader...also warned the U.S. government could be more "vocal" if Japan reviewed past statements in which the government formally apologized for wartime aggressions in other Asian countries.

Bader's statement provides an interesting contrast to more enthusiastic accounts of US-Japan cooperation under the second Abe administration.

On the one hand, the US-Japan alliance will not be fundamentally undermined by Abe and other senior LDP politicians' questioning past apologies for Japan's wartime behavior. US-Japan security cooperation is too important regionally and too institutionalized to be much affected by impolitic statements. The US military and the Japanese Self-Defense Forces will continue to train together no matter what Japanese politicians say.

On the other hand, the US-Japan alliance is not the only US relationship in East Asia and if other allies, say, South Korea, voice their disapproval about Japan's leaders directly to the US president, the US cannot be indifferent. (Japanese right wingers say the US cannot be indifferent because of the influence of Asian-American interest groups, but I don't think it's necessary to cite the nefarious influence of lobbying groups to explain why the US might have a problem with tension between its two major allies in Northeast Asia.)

So what can the US do about the "history wars" in East Asia? Is being more vocal the answer? Ideally, the first step to US involvement would be to establish just what kind of comments or behavior would draw reproach from senior US officials. Would Abe's remarks about whether Japan "invaded" its neighbors qualify? Or the US only step in when the Japanese government undermines official apologies? Would visits to Yasukuni by the prime minister or cabinet ministers draw rebuke? What about statements like Osaka Mayor Hashimoto Tōru's comments about comfort women? Would Hashimoto be criticized even though he is not a national official?

Second, would the US response be limited to rhetoric action, or would it be matched by symbolic gestures? Would the US administration withhold state dinners or invitations to Camp David?

However, the more one thinks about Bader's suggestion and its implications, the more it seems that the US is already fairly vocal about Japanese prevarication about history. In recent years there is no shortage of examples of legislators and administration officials criticizing the words and actions of Japanese leaders. As Dennis Halpin writes (pdf) in a note on President Park's address to a joint session of Congress last month, when an address by Koizumi Junichirō to a joint session was being mooted during Koizumi's valedictory trip to the US in 2006, the late Congressman Henry Hyde wrote to Speaker of the House Dennis Hastert, saying that to have Koizumi, a regular visitor to Yasukuni Shrine, speak in Congress would "an affront to the generation that remembers Pearl Harbor and dishonor the place where President Roosevelt made his 'Date of Infamy' speech." Of course, the House of Representatives also rebuked Japan in 2007 when it passed House Resolution 121, calling on Japan to "formally acknowledge, apologize, and accept historical responsibility in a clear and unequivocal manner" for the wartime "comfort women." The executive branch has done its part as well. For example, during Abe's visit to Washington earlier this year, Danny Russel, Bader's successor at the NSC, called for Japan to do more to encourage historical reconciliation.

A more interesting question, then, is what effect US intervention has had thus far on Japanese leaders. I think one can make the case that statements by US officials have at least helped blunt talk of revising or replacing the Kōno statement on the comfort women and the Murayama apology for the war. Perhaps it has also kept Abe from visiting Yasukuni while serving as prime minister. However, it is hard to imagine US intervention in the history wars achieving more than it already has. It is unlikely that US intervention will change what anyone thinks about history, and it may even result in more provocative statements by right-wing Japanese politicians and commentators outside government, the kind of Japanese conservatives who have found a political home in Hashimoto and Ishihara Shintarō's Japan Restoration Party. These conservatives, after all, already believe the US holds Japan in contempt — as Air Self-Defense Forces General-turned-talking-head Tamogami Toshio writes (jp) in his defense of Hashimoto — and so would perhaps even make a point of defying US criticism. To the extent that Japan's neighbors treat all provocations equally, more active US involvement in the history wars could exacerbate tensions.

Being "more vocal" may not, therefore, be without risks. There may not be much the US can do other than prevent Japanese leaders from changing the status quo in the history wars. Resolving the history issue may ultimately depend on the Japanese people themselves. As Stanford's Daniel Sneider argues in a new article in Asia-Pacific Review (discussed here), the revisionist narrative is by no means the dominant historical narrative in Japan. The only way for Japanese to change the incorrect image of Japan as a nation of revisionist warmongers is for Japanese speak up when their leaders try to rewrite history, as encouragingly happened after Hashimoto's remarks. To the extent that the US can encourage and praise Japanese behavior in pursuit of historical reconciliation, it might actually be able to do more good than if it were to step up its criticism of Japan's leaders. Of course, whether reconciliation happens will depend on the willingness of Japan's neighbors to acknowledge that most Japanese recognize the wrongs committed by their country and to come to see Japan's right wing as aberrant, not representative.

Japan the model?

noreply@blogger.com (Tobias Samuel Harris) — Mon, 10 Jun 2013 15:20:00 +0000

Joseph Stiglitz has a piece at the New York Times praising Abenomics as "a huge step in the right direction." At the same time, however, he also argues that Japan's malaise was never as bad as the popular narrative suggested. In fact, Japan, Stiglitz writes, should be viewed as a model for the United States as it struggles with its own sluggish economy and mounting inequality.

However, there are a few problems with Stiglitz's account of Japan's recent history and the extent to which it can serve as a model for the US.

First, Stiglitz uses static measurements of inequality in Japan and the US, both in terms of the Gini coefficient after taxes and redistribution and in terms of the average income of the top 10% of earners relative to the average income of the bottom 10% of earners. However, the OECD's data shows that while Japan is more equal than the US, it is significantly less equal than it was in the 1980s. The trend looks the same even if one looks at working age population instead of total population.

When one looks at Japan compared with countries other than the US or with the OECD average, Japan looks considerably less impressive. Here's Japan compared with the G7 countries in terms of its Gini coefficient after taxes and transfers:

Japan's performance is not quite as bad as the US and the UK, but it's not substantially better either.

In short, it's a bit puzzling for Stiglitz to praise Japan as a model for the US on equality grounds, especially since concerns over inequality have been strong over the past decade in Japanese politics.

That brings me to the second question I have about this article. Stiglitz wants to reexamine the "popular narrative" of Japan's stagnation but he doesn't indicate with whom exactly he is arguing. By now, the idea that in per-capita terms Japan's "lost decades" haven't been quite so gloomy seems to have at least made inroads in non-Western discourse about Japan. However, as noted above, arguably the Japanese people themselves still believe that the "lost decades" were in fact lost. How else can one explain the broad public support for the Abe government's economic program? Without a popular narrative of stagnation in Japan there is no Abenomics.

Third, Stiglitz is too quick to praise the Abe government for taking on structural reform. The "third arrow" of structural reform remains nothing more than rhetoric — and will continue to be nothing more than rhetoric at least until the fall's special session of the Diet. Given that Japanese governments have been seeking to promote the "structural transformation" of the Japanese economy since at least the 1980s and given the LDP's historical ambivalence towards structural reform, one has reason to be skeptical, at least for now.

So is Stiglitz right to present Japan as a model for the US to follow? Both in terms of Japan's past performance and the current performance of the Abe government there are reasons to refrain from putting Japan on a pedestal. Even if Japan's economy is not quite as bad as is sometimes argued, it is far from being a shining example of coping with stagnation. The quality of life for many Japanese has worsened, particularly for those living outside of Tokyo. Young Japanese still enter a workforce in which they have limited career opportunities if they fail to secure regular employment upon graduation. As Stiglitz himself acknowledges, poverty among the elderly is not inconsiderable. The US shares many of these problems, of course, but given how much Japan has struggled, not entirely successfully, to preserve the quality of life its citizens once enjoyed Japan is still more a cautionary tale than a model. For now, coming after years of halfway measures or inactivity by the Japanese government Abenomics is perhaps best described as a last-ditch effort to revitalize the Japanese economy rather than as a decisive program to overcome stagnation.

Is constitution revision actually possible?

noreply@blogger.com (Tobias Samuel Harris) — Wed, 29 May 2013 01:23:00 +0000

Last week, the Sankei Shimbun reported that, in the face of mounting public opposition, the LDP would in fact not put revising Article 96 of the constitution at the heart of its upper house campaign strategy. (Naturally, the next day Sankei published an editorial arguing that the LDP should make revising Article 96 central to the campaign as a matter of course.)

But is the LDP — and, more importantly, is Prime Minister Abe — actually backing away from their determination to use the upper house election to gain a mandate for revising Article 96? More importantly, does it matter?

At the very least, we're probably seeing the emergence of what will likely be a persistent pattern should Abe remain in power. Abe and his lieutenants will talk about the need to revise the constitution, Komeito will express its unease about revision, what's left of the left wing will sound the alarm, public opinion polls will reveal skepticism about revision, LDP grandees will suggest backing down...and rinse and repeat.

Barring a dramatic external shock, it is difficult to see how the politics of constitution revision will change in favor of revision. The bid to put revising Article 96 before more substantive revisions has done nothing to defuse opposition to revision. It seems unlikely that Komeito will become more enthusiastic about revision. Depending on the now-toxic Japan Ishin no kai to pass amendments is a non-starter, not least because it is unlikely they will win anywhere close to enough seats to help the LDP. Defending the constitution may be one of the few areas in which the Japanese left is still be able to mobilize citizens. It will presumably take some event that reveals the constitution to be woefully inadequate for coping with the challenges Japan faces — one of the arguments used by revisionists — for these political obstacles to vanish.

As long as Abe doesn't pay any political costs for stumping for revision, there's no reason to think he'll back down entirely, even if from time to time constitution revision takes a back seat to other issues. But no matter how much Abe talks about revision, for the foreseeable future I have a hard time seeing how it will ever get traction. There are just too many people either skeptical about or completely opposed to changing the postwar constitution. More importantly, Japan's conservatives are much better at preaching to (haranguing to?) the converted than winning new converts.

The power of positive thinking?

noreply@blogger.com (Tobias Samuel Harris) — Fri, 17 May 2013 19:23:00 +0000

Prime Minister Abe Shinzō Abe spoke with Jonathan Tepperman, managing editor of Foreign Affairs this month in an interview published under the heading "Japan Is Back."

The interview is fairly comprehensive, discussing Abenomics and Japan's economic problems, history issues, territorial disputes, the constitution, and security policy. Tepperman was not shy about confronting Abe, especially when it comes to Japan's imperial past.

The interview provides another glimpse at how foreign policy narratives coalesce. Reflecting on his first term as prime minister and discussing what he is doing differently this time, Abe said, "I have...started to use social media networks like Facebook. Oftentimes, the legacy media only partially quote what politicians say. This has prevented the public from understanding my true intentions. So I am now sending messages through Facebook and other networks directly to the public."

In other words, Abe is sensitive to the need to control the narrative at home and abroad. The narrative that Abe is trying to establish is that no problem is so daunting that Japan cannot overcome it. While he does not say that "Japan is back" in this interview, that was the title of the speech he gave at CSIS in Washington, DC in February. As in that speech, the challenge for Abe is to acknowledge that his country faces serious difficulties — how else could he justify his program? — but then to show that Japan is more than capable of overcoming them. As Abe says, "I know that the current situation is difficult, and the world economy will have ups and downs. But that is the mandate I was given, and we are elbowing our way through."

Of course, in propagating this narrative, Abe has help from the "legacy media" around the world. For example, the cover of The Economist this week features a soaring Abe — garbed in Superman's tights — flanked by fighter jets.

Abe is determined to project an air of inevitability about his policies. Of course, in monetary policy, projecting an air of certainty may signal the credibility of the Bank of Japan's commitment to a higher rate of inflation, so perhaps there's something to Abe's positive thinking. As The Economist writes in its briefing, "Promoters of Abenomics say that changing perceptions will create a virtuous circle. Bigger company profits will engender wage rises, which will boost consumption, which will lead to renewed business investment, which will lead to profits."

But one must be sensitive to the fact that this is all an exercise in narrative formation. Though Abe has promised to "elbow through," he has not in fact done so yet. As Michael Cucek shows, there are competing narratives even for the first quarter GDP figures that are being hailed as early indicators of the government's success. There are still blanks the government must fill in when it comes to its growth strategy. The demographic challenge continues to loom, and will not be elbowed through so easily, unless Abe is sitting on a plan for mass immigration. The point is not that there aren't encouraging signs or that Abe isn't in a favorable position to make progress, but rather that the "Japan is back" narrative requires minimizing or ignoring the challenges.

There is a bigger question of what exactly it means that Japan is "back." Will it be more assertive diplomatically or militarily? Will it spend more on its military? Will it remove the remaining restraints on its use of force at home and abroad? Abe gave some hints in his CSIS speech — "A rules-promoter, a commons' guardian, and an effective ally and partner to the U.S. and other democracies, MUST Japan be" — but it is still unclear what Abe's restored Japan would do differently, especially given that the Obama administration, "pivot" notwithstanding, has been exceedingly cautious in Asia. In other words, no matter how successful Abe's economic program, Japan will still be hemmed in by an ally that seems primarily interested in regional stability, by neighbors that distrust an assertive Japan, and not least by the Japanese public, which is not entirely keen on lifting all restraints on Japanese security policy.

These concerns, taken together with lingering questions about Japan's economy and whether Abenomics can produce sustainable growth, suggest caution is still in order.

Cognitive biases and the rise of China

noreply@blogger.com (Tobias Samuel Harris) — Thu, 16 May 2013 19:30:00 +0000

Harvard's Alastair Iain Johnston has a must-read article in the Spring issue of International Security in which he dissects the spread of a meme of China's "new assertiveness" spread among policy analysts, the media, and scholars in the US in 2010. (Available for free as a pdf, at least for the time being.)

As Paul Pillar notes, Johnston not only raises questions about whether China's foreign policy has become more assertive since the 2008-2009 financial crisis, citing numerous examples of continuity, but he provides an important examination of how foreign-policy narratives form in the twenty-first century. By using memetics — the process by which an idea or belief spreads from mind to mind — Johnston provides a new way of thinking about how conventional wisdom forms. As Johnston notes, the media has played an agenda-setting role before, but with the emergence of the blog and the rise of Twitter as a medium for the exchange of serious ideas, foreign-policy discourse, especially in the US, seems qualitatively and quantitatively different, not just moving faster but also occurring in much greater volume than ever before.

After all, not too long ago to receive the latest conventional wisdom on foreign policy you had to wait for the latest issue of, say, Foreign Affairs to arrive in the mail, with a steady diet of newspaper op-eds and weekly magazine articles to tide you over. Now in the time between issues of Foreign Affairs you can read daily the fifteen blogs at the website of the Council on Foreign Relations (which publishes Foreign Affairs), not to mention the fifteen blogs at Foreign Policy's website and numerous other blogs hosted by think-tanks and publications, and the Twitter feeds of the contributors to these blogs and magazines. This all amounts to what Johnston calls a "discursive tidal wave."

Johnston talks about first-mover advantages and herding when it comes to the formation of prevailing narratives in foreign-policy discourse, but there is another, related problem Johnston doesn't explicitly mention but more or less illustrates in his essay. Namely, with so much data streaming past our eyes, the dangers from the cognitive biases are surely heightened. As Daniel Kahneman writes in Thinking, Fast and Slow, the human mind is "a machine for jumping to conclusions." Presumably the more information analysts must sift through, the more they're likely to fall victim to confirmation biases, the halo effect, the availability heuristic, and other mental shortcuts that can lead to erroneous conclusions. Human beings did not need to invent the Internet to struggle with these biases — and one can easily argue that policymakers have always fallen prey to them — but the Internet is uniquely suited to encourage Kahneman's "fast thinking" (intuitive thinking in the face of uncertainty).

Johnston's article, then, is a note of caution to be sensitive to how foreign-policy narratives form today, a warning to analysts to not take shortcuts but instead to use careful scientific reasoning before reaching conclusions and, in the case of China, to be sensitive to history, to avoid making inferences from a small sample size, and to be clear about what they think is driving China's behavior. There probably isn't much that can be done about the state of foreign-policy discourse today, but one can hope that the high-speed, high-volume discourse is at least more amenable to self-correction than the older discourse.

(For other comments on this essay see Daniel Drezner and Graham Webster. Drezner's comment that Johnston falls victim to ahistoricism himself is probably right — I would have liked to see a bit more discussion of how conventional wisdom formed in US foreign policy in the past, beyond a handful of references to media studies articles on the media's role as agenda setter.)

Don't declare victory for Abenomics yet

noreply@blogger.com (Tobias Samuel Harris) — Sat, 11 May 2013 21:35:00 +0000

With the yen's falling to below ¥100/$1 for the first time since 2009 and the Nikkei’s posting five-year highs, analysts have begun declaring victory for the Abe administration’s campaign against deflation and slow growth. Paul Krugman, the intellectual godfather of Abenomics, has not quite begun his victory dance yet, but he is optimistic that under President Kuroda Haruhiko the Bank of Japan has credibly signaled that it will continue monetary expansion until it reaches its 2% inflation target.

But it is far too early to draw conclusions about the success of Abenomics — given that deflation continues — and there remain a number of unanswered questions surrounding the Abe government’s economic program.

Ultimately, the success of an economic program must be measured not just in terms of corporate balance sheets, but also in the economic wellbeing of average citizens. If wages remain stagnant or if Japan experiences a jobless recovery, can Abenomics be declared a success? What will Abenomics mean for the Japanese worker? As a New York Times article by Hiroko Tabuchi and Graham Bowley suggests, it remains to be seen whether monetary stimulus will translate into wage hikes or higher employment — though the government is trying to encourage corporations to hire more workers and raise wages. It may also depend on whether the government is able to reverse the rise of Japan’s non-regular workforce, the short-term contract workers who enjoy few benefits, little to no job security, and virtually no opportunities for advancement. Non-regular workers comprise between a third and a half of the labor force, and as the government acknowledges, the non-regular sector constitutes a tremendous waste of human capital.

However, without a plan to overhaul the Japanese labor market, the danger exists that exhortations to raise wages will result in corporations’ raising wages for regular workers but maintaining or cutting low wages for non-regular workers, thereby deepening the inequality that exists between regular and non-regular workers. The Abe government and the LDP are not blind to this problem — last month, for example, LDP Vice President Komura Masahiko said (jp) that more had to be done to improve the status of non-regular workers and provide equal pay for equal work — but thus far it is not clear how the government plans to resolve it. (For more discussion of the problems in Japan's labor market, see here.)

The same goes for gender balance in the labor force. Noah Smith (a onetime guest blogger here) has identified how underutilized women are in the Japanese labor force, and expressed his hopes that the Abe government will act to increase female participation in the workforce. Abe has, to his credit, said the right things about gender equality.In his 19 April speech at the Japanese National Press Club (jp), Abe spoke of gender equality as not a social policy issue, but as a central piece of his growth strategy. The reality is, however, that we just don’t know what he will be able to do to change the role of women in the economy. Pretty much the only specific proposal Abe mentioned in his speech was the proposal to increase the number of women in corporate management positions, but that proposal affects a fairly small number of women. Abe is not the first politician to pledge to do something about gender inequality — for the past decade Japan has had a cabinet-level minister of state for gender equality — but we still don’t know what Abe will do to succeed where previous governments have failed.

Reforming the labor market is part of the so-called “third arrow” of the Abe program, the Abe government’s growth strategy. Once again, Abe’s rhetoric is at least encouraging — talk about public-private partnerships to move Japan from inefficient to high-value-added sectors — but until the government’s detailed plans are released in June, it is difficult to say anything conclusive about whether the Abe government will succeed at transforming Japan’s economy. It is worth noting that the Abe government is not the Koizumi government redux: whereas Koizumi talked of moving from the public sector to the private sector, in his speech last month Abe stressed the role of government in promoting growth in new sectors, industrial policy for the new century, with all the risks that come with efforts by government to pick winners.

Abenomics (and the latest round of quantitative easing in the US) has raised fears of currency wars breaking out between Japan and its competitors. The effects of the BOJ’s stimulus program are already being felt outside of Japan. South Korea’s central bank has already moved to cut rates in light of the ongoing decline of the yen against the won, as did Australia’s central bank earlier this week. European exporters — especially Germany’s — are feeling the pain from the yen’s decline against the euro. Of course, no government will admit that a currency war is afoot, but if other governments engage in competitive devaluation with Japan the benefits to Japanese exporters from a weaker yen will be muted (if they aren’t already muted). Though the G7 finance ministers' meeting in the UK this weekend did not necessarily single out Japan for criticism, the fact that the meeting was held does suggest that Japan's policies are under close scrutiny abroad.

There are also lingering questions about Japan’s fiscal situation. With the BOJ stepping in to buy government bonds, the Japanese government will continue to be able to borrow without having to worry about rising interest rates. But the risks of Japan’s ever-growing debt remain — and if the BOJ has in fact succeeded at convincing market actors that it is committed to raise inflation, there is the risk that it will be unable to control inflation once it has met its target, hastening the day when interest payments will rise and break the government’s budget. The government is in a race against time. It needs to trigger sustainable long-term growth that can raise tax revenue before interest rates rise. The Abe government has indicated if economic conditions are still sluggish, it will delay the consumption tax increase passed under the Noda government, thereby postponing a useful means of closing the government’s annual deficit of 10% of GDP.

Finally, the question of Japan’s demographics looms over the debate about Abenomics. Edward Hugh offers a sobering account of how demographics may forestall the Abe government’s program. Hugh basically asks whether Japan has experienced a prolonged balance-sheet recession and is in a liquidity trap, as argued by Krugman, Richard Koo, and others, or whether Japan’s persistent demand shortfall is the result of a “shrinking population trap.” Hugh is skeptical that either fiscal or monetary policy will fix Japan’s economy and that the government’s monetary policy experiment risks triggering capital flight as elderly Japanese investors seek higher returns elsewhere. Hugh’s post is lengthy and I cannot do it justice with a short summary, but it should be taken into account when deciding whether Abenomics has succeeded.

The point is that it is impossible to know whether Abenomics has succeeded until we actually see the whole program put into action. Generating inflation is, as the Abe government says, just one arrow in a comprehensive plan to rejuvenate Japan’s economy. Stock market gains and a weaker yen may be helpful indicators but they should not be mistaken for signs for change in the real economy. Similarly, promising rhetoric about reform is encouraging, but after decades during which many Japanese politicians have talked a lot about reform but failed to follow through, it seems that a “wait-and-see” attitude is still appropriate.

Abe probably has about as favorable a political environment as a Japanese prime minister could ask for — dysfunctional opposition parties, few challengers within the LDP, and high public approval ratings — suggesting that he may well be able to follow through on his ambitious agenda. That being said, if Abe cannot reverse Japan's economic woes even with all of these factors working in his favor, I have to wonder if anyone can.

Abe's neo-statism

noreply@blogger.com (Tobias Samuel Harris) — Thu, 09 May 2013 13:59:00 +0000

This week Prime Minister Abe Shinzō criticized right-wing demonstrations in Koreatowns in Tokyo and Osaka, stating, “The Japanese way of thinking is to behave politely and to be generous and modest at any time.” While it is, of course, good that Abe made a point of criticizing hate speech, it's important to recognize that Abe is pursuing a different program than some of the cruder conservative revisionists in his own party, the conservative media, or the right-wing demonstrators who terrorize the ears of Tokyoites with their sound trucks. The problem with the word "nationalist" is that it obscures more than it reveals.

In an astute article about Abe's program, the FT's David Pilling notes Abe's agenda can rightly be summarized using the Meiji slogan, Fukoku-kyohei (rich nation, strong army). What I wonder, though, is whether it is best to think of Abe as a nationalist or whether it is more appropriate to think of him as a statist, not unlike his Meiji forebears. The distinction is important. The right-wing demonstrators criticized by Abe are little more than chauvinistic ethnic nationalists, intent on showing the superiority of the Japanese people. Abe is interested in the survival of the Japanese nation in international competition, with the state as a kind of avatar of the Japanese people. His way of thinking is steeped in Hobbesian and social Darwinist conceptions of the state, in which the state and people exist in a sort of organic solidarity and in which the state is focused largely on protecting lives and property from enemies foreign and domestic. To compete with other nation-states, the state must be capable of organizing and drawing upon the country's resources and the people's energy in order to compete.

Accordingly, when Abe talks of breaking free of the postwar regime or creating a normal nation, it is with this idea in mind. Nationalism is a means to the end of strengthening the state. Encouraging national pride is useful to the extent that it makes Japanese citizens more amenable to constitution revision, more supportive of an assertive Japanese military, and more eager to stand up to provocation by China or North Korea, just as revitalizing Japan's economy is useful to the extent that it improves the state's fiscal position, swells its coffers, and bolsters national confidence.

The question is whether Abe's neo-statism poses risks to peace and security in East Asia. On the one hand, China arguably views the world along similarly social Darwinist lines, and one can therefore make the case that national survival for Japan depends on embracing a similar way of thinking, making Japan less vulnerable to bullying by China. However, the danger of Japan's embracing a social Darwinist conception of international competition is that it would make every problem between Japan and its neighbors harder to resolve, because every issue would become a question of status in the international hierarchy. When combined with fewer restraints on the use of force by Japan, the risk of outright war would surely increase.

There are still a number of hurdles Abe must overcome before he can remake Japan according to his neo-statist vision — and he must still convince the Japanese people of its wisdom, especially as far as constitution revision goes. But it is important to understand just what kind of nationalist Abe is, and to be aware that whatever short-term tactical concessions he makes, he has a long-term vision of where he wants to take his country.

Resisting the urge to "just do something" in US foreign policy

noreply@blogger.com (Tobias Samuel Harris) — Wed, 08 May 2013 23:07:00 +0000

Edward Luttwak has a brief piece at Foreign Policy in which he praises the restraint with which the Obama administration has approached the ongoing conflict in Syria. Luttwak argues that the importance of managing China's rise means that the US should get out of the business of determining the nature of political regimes in the Middle East:

The United States has other new responsibilities: To respond effectively to a rising China, it is essential to disengage from the futile pursuit of stability in North Africa, the Middle East, and Afghanistan. Their endless crises capture far too much policy attention and generate pressures for extremely costly military interventions that increase rather than reduce terrorist violence.

In other words, Luttwak is calling for the US to focus on a strategic goal that it has proved capable of pursuing in the past: preventing the emergence of a hegemon on the Eurasian landmass, using a mix of alliances, bilateral and multilateral diplomacy, deterrence, and, if necessary, war. As Luttwak notes, pursuing this goal in the face of a rising China is trickier in the past, not least because of economic interdependence and the degree to which China — at least until relatively recently — has avoided the naked aggression of rising powers of the past, and therefore requires nuance, subtlety, and Washington's full attention.

Of course, even without the need to get Asia's future right, there's a good argument for the US government's being less involved in the makeup of Middle Eastern governments: even before Iraq, the US did not exactly have the best record when it came to picking and supporting Middle Eastern regimes.

The problem, however, is neither restraint nor strategic prioritization seem to have much purchase in American elite discourse. As Salon's Alex Pareene noted in the midst of North Korea's saber rattling last month:

Making matters worse is that our political press frequently moonlights as our foreign affairs press. And that press thrives on partisan conflict and has an innate bias in favor of “action.” (Every Sunday show features a foreign policy panel in which multiple participants inevitably agree that America needs to “do something” about the situation in some other country. “Do something” is always considered sound, serious advice.)

Because the default position whenever anything happens anywhere for many American foreign policy and media elites is "do something," it becomes exceedingly difficult for an administration to exercise restraint without appearing weak. So the real question is whether the US can break some of the bad habits of the unipolar '90s, when many elites convinced themselves that the US could be everywhere and solve every problem. By refraining from armed intervention in Syria (thus far), the Obama administration has at least taken a step in the right direction.

The pivot to Asia cannot just mean shifting resources and personnel. It can only work if it is accompanied by self-restraint and discipline, which means resisting the urge to solve any problem that arises somewhere in the world, no matter how thorny.

Following the leader

noreply@blogger.com (Tobias Samuel Harris) — Sun, 05 May 2013 14:29:00 +0000

Michael Cucek catches a comment from LDP Secretary-General Ishiba Shigeru at a public appearance in Kagawa.

Ishiba said, "The Liberal Democratic Party is a party for doing what?...First and foremost, it a party for the revision of the Constitution."

Cucek raises some useful questions about what this statement means, but I wonder whether Ishiba wasn't just being extremely literal.

After all, revising the constitution is right there in the party's founding documents. In the party platform of 15 November 1955, the sixth and last (but arguably not least) proposal says that the party will "plan for independent revision of the current constitution and reexamine Occupation-era laws, changing them to conform with national conditions." The same plank says "in order to protect world peace, state independence, and popular freedom," the LDP will create a self-defense force and prepare for the removal of foreign troops stationed on Japanese soil (i.e., the US military).

But to try to answer Cucek's questions, I don't know if the Westminsterization is really all that stealthy. If a prime minister knows what he wants to do, has the public behind him, and faces no real opposition from within his own party, one should not be surprised that even a politician with an independent base of support like Ishiba would have to follow the leader, right down to his rhetoric.

There doesn't seem to be a whole lot standing in the way of Abe Shinzō's completing the work of his grandfather and the other fathers of the LDP.

A cleaner, leaner Observing Japan

noreply@blogger.com (Tobias Samuel Harris) — Sat, 04 May 2013 17:46:00 +0000

::Sweeps away dust and cobwebs::

*cough cough*

Is anybody here?

I've been away so long that Google completely redesigned Blogger's dashboard, so that it took me a little while to figure out how to use it. Anyway, as you can see, I've cleaned up the blog, switched to a more minimalistic template, and removed dead links and obnoxious buttons and ads.

As for content, I'm still deciding what exactly I'm going to do with Observing Japan henceforth. It may be a little strange to revive the blog when wags are declaring that the age of the blog is over, but then, I've always had anachronistic tendencies. I don't think I'll match (or even try to match) the prolixity of years past. At the very least, I'll provide links to what I say and write elsewhere. Stay tuned for more soon.

Kan tries again on trade

noreply@blogger.com (Tobias Samuel Harris) — Sat, 22 Jan 2011 00:29:00 +0000

When the DPJ was campaigning to unseat the LDP in 2009, its manifesto included a pledge to "conclude" a free-trade agreement with the United States. The agricultural lobby flexed its muscles, and shortly after releasing its manifesto the DPJ issued several "clarifications," changing its pledge to reach an FTA with US to a pledge to "begin negotiations." Kan Naoto insisted that it would not conclude any agreement that harmed Japan's farmers. While the party claimed otherwise, the issue was effectively dropped for the duration of the campaign and the DPJ's first year in power.

After his victory over Ozawa, Kan, now prime minister, brought the issue of trade openness back onto the agenda in the form of Japanese participation in the Trans-Pacific Partnership. Simply put, Kan's initial attempt to clear the way for Japanese involvement in TPP was stymied by the agricultural sector — with help from members of the DPJ. The lobby argued that participation would devastate Japanese agriculture, and forced the government to make a weak commitment to "study" participation, a climb down considering the soaring rhetoric with which the PM announced that his government would study participation in his policy speech at the start of the autumn Diet session.

However, with the start of a new year and a new Diet session, Kan, far from being chastened by the earlier defeat at the hands of the agricultural lobby, is positioning his government to begin the campaign anew. As Corey Wallace notes, the "themes" of this reshuffle were tax and pensions reforms and TPP. Regarding TPP, the most significant change was the appointment of Kaieda Banri as minister of economy, trade, and industry. Moreover, Hachiro Yoshio, a former farmer, was replaced as Diet affairs chairman by Azumi Jun. Combined with Maehara Seiji's staying on at the foreign ministry — Maehara has repeatedly called attention to the importance of economic openness for Japanese foreign policy — Kan managed to put into place a team that will be committed to the fight for free trade. His cabinet quickly agreed to TPP participation as a basic policy of the latest Kan government.

The question is whether Kan will be able to translate this ambition into reality. At the very least, the Kan government (and the DPJ) appear to have found their purpose. After fumbling around in search of a major issue or two to devote its energies to, the DPJ-led government has decided to tackle two rather pressing issues, which, combined with the challenges in Japan's bilateral relationships, passing the budget and budget-related bills, and managing life as a de facto minority government will be more than enough to keep the Kan government occupied.

But in pursuing an open Japan — Kan's New Year's message was devoted to his goal of a third opening, a "Heisei opening" that would mean not just a Japan open to more imports but open to cultural, intellectual, and social exchanges across borders — the Kan government arguably faces an even steeper battle than Koizumi faced when he took on the postal system, meaning the postal workers and their allies in the LDP. Between the rural bias in parliamentary representation (which, given the size of the DPJ's parliamentary caucus, inevitably means that there will be battles within the DPJ), the opposition of local governments in rural areas throughout Japan, and the outsized power of Nokyo, the Kan government faces formidable and perhaps insurmountable obstacles to bringing Japan into TPP.

A basic understanding of international political economy is that free trade falters because its costs are concentrated while its benefits are diffuse. Plenty of states have joined free-trade agreements, suggesting that this fundamental tenet may not be all that fundamental. But what can the Kan government do to overcome the determined resistance of the agricultural lobby and its allies? For starters, the government needs to build a coalition of its own to rival the anti-TPP coalition. Business peak organizations like Keidanren will be indispensable partners for the Kan government if it is as serious about TPP as it says it is. Given the frosty relations between the DPJ and big business, the "anti-business" planks of the DPJ's manifesto, and the party's ties with organized labor (and big business's traditional ties with LDP), building this coalition will take some work, although this meeting between Kaieda and Keidanren's Yonekura Hiromasa is an encouraging start.

But it will take more than the help of friendly interest groups for the government to succeed. Ultimately, TPP may be the first big test for the DPJ's parliamentary-cabinet system. On paper, the DPJ's new policymaking process ought to (1) enable the government to coordinate its strategy on TPP across the relevant ministries (METI, MAFF, MOFA, etc.), (2) keep all cabinet ministers on board with the policy, (3) silence opposition within the ruling party, and (4) make strong, direct appeals to the general public about the necessity of the government's program. It is not a perfect analogue, since the upper house, now controlled by the opposition parties, gives the opposition parties procedural weapons they lack in the UK. However, the Kan government still has considerable tools at its disposal. The question is whether it uses them. As Andy Sharp argues at The Diplomat, it may well take a Koizumi-style PR blitz for the Kan government to win on this issue. It needs to hammer home why TPP — and greater openness more generally — are good and necessary for Japan. The idea that trade policy is an arena where groups with "objective" interests derived from their position in the global economy is overstated. Even among urban residents, thought to be the natural constituency for free trade, support cannot be taken for granted. The policy will not sell itself; an pro-TPP interest coalition needs to be constructed. The government's plan to convene town halls across Japan in February and March to explain the benefits of the policy are a good first step. But more talk will be needed. And side payments in one form or another will be unavoidable.

There is considerable risk in taking on TPP at the same time that the government will be debating a consumption tax increase linked to pensions payments, which, if not handled properly, could produce public opposition that could overwhelm the patient work of building a consensus on TPP. Nevertheless, as the Kan government and the DPJ begin a new year in power, they seem to be finding their bearings on policy. This government may yet leave a positive legacy.