Abe fails to dash forward in Year of the Boar

Posted in Japan | 12-Mar-07 | Author: Hisane Masaki

"His young, fresh image and telegenic appearance swept Shinzo Abe to power in late September 2006, replacing his flamboyant predecessor,…
"His young, fresh image and telegenic appearance swept Shinzo Abe to power in late September 2006, replacing his flamboyant predecessor, Junichiro Koizumi. Unlike Koizumi, whose combative style earned him the nicknames of “Lion heart” and “Maverick” and helped him keep high popularity, Abe never roars, putting on a stiff upper lip. But Abe’s soft-spokenness largely masks, at least in the eyes of many Japanese, the fact that he is a die-hard ultraconservative, nationalist and hawk in his own right. Abe is to visit Washington in late April, his first visit since taking office. North Korea and Iraq are expected to top the agenda for talks between Abe and President George W Bush.""
When the Year of the Boar began, political attention in Japan was focused on whether new Prime Minister Shinzo Abe would be able to consolidate his grip on power in an election year and begin to charge ahead towards achieving his longer-term, arduous agenda. As things stand now, however, Abe appears more likely to fail to do so.

Abe, who took office in late September 2006, will face his first major electoral challenge this summer, when a triennial Upper House election will be held. Whether he can lead his ruling coalition to a victory in the polls - a mission far from a cakewalk, if not impossible - may determine his political fortunes.

Topping his long term agenda are revision of the post-war pacifist constitution and a hike in the broadly levied consumption tax, both of which are highly divisive and potentially explosive issues for the Prime Minister.

Abe has declared that he will make constitutional amendments the key issue in the upcoming election for the House of Councillors, the upper house of the Diet (parliament). The current 150-day ordinary Diet session ends in June, after which the Diet members will adjourn to campaign for the upper house election in July.

Abe, 52, is the youngest post-war Japanese premier and the first premier to have been born after the war. His rise to the top government post marked a turning point for Japanese politics.

Naming his new administration the "nation-building cabinet", Abe has said he wants Japan to revive family values, be proud of its identity, and display leadership in international affairs. He has advocated a more assertive foreign policy and called for a "departure from the post-war regime" by revising the pacifist constitution, among other things. The constitutional revision would allow the country to take a higher profile militarily on the global stage.

His young, fresh image and telegenic appearance swept Abe to power in late September 2006, replacing his flamboyant predecessor, Junichiro Koizumi. Unlike Koizumi, whose combative style earned him the nicknames of “Lion heart” and “Maverick” and helped him keep high popularity, Abe never roars, putting on a stiff upper lip. But Abe’s soft-spokenness largely masks, at least in the eyes of many Japanese, the fact that he is a die-hard ultraconservative, nationalist and hawk in his own right.

There is a growing discontent among many conservatives, however, that Abe has changed his coat since taking office. Abe is widely known for his nationalist views on history and hawkish stance toward such countries as China. But in a concerted attempt to repair damaged relations with China and South Korea, Abe has either toned down or even reversed his previous rhetoric, at least in public. Immediately after being elected Japan’s leader, Abe made an unusual, whirlwind fence-mending tour of Beijing and Seoul.

Under such circumstances, suspicions are brewing on both sides of the political spectrum, with his conservative supports fearing that Abe might further deviate from the path they initially expected him to tread as premier, while critics of his hawkish and nationalist views expressed in the past on history and other issues apprehensive that he might revert to type before long.

Although nearly three months have passed since the Year of the Dog ended, Japan remains dogged by a host of foreign-policy challenges carried over from the old year.

Among those challenges are: resolving the crisis over neighbouring North Korea’s nuclear program - a grave security concern for Japan - as well as the issue of North Korea’s past abductions of Japanese citizens; contributing to peace and reconstruction in Iraq; and getting soured relations with China and South Korea, a negative legacy of Abe’s predecessor Koizumi, back on track.

Abe is to visit Washington in late April, his first visit since taking office. North Korea and Iraq are expected to top the agenda for talks between Abe and President George W Bush.

Meanwhile, the Japanese economy is expanding, renewing the record post-war growth spell. Many analysts optimistically expect the expansion to continue, at least throughout 2007. The Bank of Japan (BOJ) ended its unusual zero-interest policy of nearly six years last July, raising rates to 0.25% from effectively zero, as the economy gained in strength. The central bank made another 0.25% rate hike in February.

"The constitutional revision would allow the country to take a higher profile on the global stage."
"The constitutional revision would allow the country to take a higher profile on the global stage."
To be sure, the prospect of the economic expansion being sustained, at least throughout 2007, augurs well for Abe and his ruling coalition in the election year, as economic conditions influence voters. But the devil is in the details.

Personal consumption remains weak, as most Japanese workers have not seen their wages rise during the current economic expansion. In addition, although former Prime Minister Koizumi is widely credited for turning around the ailing economy, critics say his laissez-faire, market-oriented structural reform program has left the negative legacy of a widening gap in society, especially between rich and poor.

Japanese politics

For Prime Minister Abe, the Upper House election in summer could be a moment of truth as it is his first full-scale national poll - and referendum on his policies - since taking office in late September, succeeding Koizumi.

The biggest opposition Democratic Party of Japan (DPJ) hopes to deprive Abe's Liberal Democratic Party (LDP)-led coalition of a majority in the Upper House, as a significant stepping stone to power. If that actually happens, the Abe government would be left a lame duck.

To be sure, the coalition between the LPD and New Komeito, a party backed by lay Buddhist organization Soka Gakkai, commands more than a two-thirds majority of seats in the 480-seat Lower House, the more powerful of the bicameral parliament, following a landslide victory in the election held in September 2005 under Koizumi. Nevertheless, if the LDP-New Komeito coalition loses a majority in the 242-seat Upper House, it will face significant difficulties pushing through its legislative agendas. Unified local elections in April are widely seen as a harbinger of the coalition’s prospects in the Upper House poll.

During his first three months in office, Abe succeeded in enacting his short-term priority bills in an extraordinary Diet session that closed in mid-December. One of the bills revised the Fundamental Law of Education to instil patriotism among students at school. It is the first revision of the basic education law since it took effect in 1947, replacing the Imperial Rescript on Education, a symbol of the nation's pre-war education system.

Another set of bills upgraded the status of the Defense Agency to a Ministry in early January, more than five decades after its inception. Upgrading the Defense Agency may be more symbolic than substantive. Nonetheless, it is significant because the agency had previously been kept in a relatively low profile position under the nation's post-war pacifist constitution. The legislation came amid Japanese public's growing desire for a sturdier national defence system, especially after neighbouring North Korea's test-firing of missiles last July, followed by its first nuclear test last October.

The set of defense bills passed into law also legally expanded in January the "primary duties" of the Self-Defence Forces, which were established along with the Defense Agency in 1954, to include overseas peacekeeping operations, including support for the US military. Previously, the SDF's "primary duties" had been limited to national defence and disaster relief at home. Overseas operations had been classified as "supplementary duties".

His high popularity swept Abe to power. But his honeymoon period with the public is already over. According to opinion polls, the public support rate for his Cabinet, which was as high as 70 percent upon inauguration, has been precipitously plummeting, due partly to scandals involving some of his Cabinet ministers that casting a dark cloud over his political fortunes ahead of the crucial Upper House election in summer.

According to a recent opinion poll conducted by the Mainichi Shimbun national daily, the disapproval rate for the Abe cabinet rose 5 percentage points to 41%, while support dropped to 36% from the previous poll in January. It is the first time that the non-support rate has been larger than the approval rate since Abe formed his cabinet last September. Many Japanese feel Abe lacks the leadership needed to steer the LDP – and the country.

The Upper House poll will very likely affect the longevity of the Abe government. If the LDP-led coalition retains a majority in the chamber, it will boost the chances of Abe holding onto power, possibly for a maximum of another five years, by winning re-election as LDP president for a second, three-year term. This means he will be in a stronger position to push through his most potentially explosive agendas - a constitutional revision and a hike in the broad-based consumption tax.

After the Upper House poll, there may be no national election until late 2009. The current Lower House members were elected in September 2005 for a four-year term. Unless the Lower House is dissolved early for a general election, the Lower House members will not face re-election until September 2009. Meanwhile, after the Upper House election in summer, no election for that chamber will be held until 2010.

At present, the LDP-New Komeito coalition has a majority of 136 seats in the 242-seat Upper House, with 112 held by the LDP and 24 by New Komeito. The biggest opposition DPJ has 80 seats and the remaining seats are held by smaller parties and independents.

It appears almost certain that the LDP-led coalition will lose some seats in the Upper House election in summer. Therefore, the focus of attention will be whether the coalition will be able to retain its majority in that Diet chamber.

Up for grabs in the next election are the half of the chamber’s 242 seats elected in the election in the summer of 2001, soon after Koizumi took the helm of the LDP and government. In that election, the LDP won big amid the “Koizumi fever” among Japanese voters. The then-tripartite coalition among the LDP, New Komeito and the now defunct Conservative Party boosted its strength in the Upper House to 138 seats. The LDP alone won 64 seats, more than half of the seats up for re-election.

In the last Upper House election in the summer of 2004, however, the LDP-New Komeito coalition failed to win a majority of the 121 seats contested, gaining 60 seats. What was more shocking for the LDP - and for the then LDP secretary general, Abe, in particular - in that poll was that the party won only 49 seats, significantly down from 64 in the 2001 election and even fewer than the 50 seats the DPJ won.

Abe is widely believed to be determined to begin addressing the issue of constitutional amendments - probably his biggest political agenda - in earnest after the next Upper House election.

"The Japanese economy is expanding, renewing the record post-war growth spell"
"The Japanese economy is expanding, renewing the record post-war growth spell"
In the autumn of 2005, the LDP adopted its draft of a new constitution to replace the current war-renouncing, pacifist constitution, written by the US occupation forces soon after Japan's 1945 defeat in World War II. Establishing a "self-imposed constitution" has been the LDP's credo since its 1955 founding. But this was the first time the LDP had actually proposed a new constitution in writing.

The LDP draft calls for rewriting Article 9 to acknowledge clearly the existence of a "military for self-defence". It also calls for more active participation in international peacekeeping activities. The current constitution is widely interpreted as forbidding the possession of a military. In reality, Japan has about 240,000 SDF troops and one of the world's biggest defense expenditures. Successive governments have explained away the contradiction by claiming that SDF is not a military but a kind of police force.

Abe, a staunch advocate of constitutional amendments, has said he will seek to have amendments realized within five years. It remains to be seen, however, whether the supreme law can be revised while he is in office. Under Article 96, any amendments must be proposed with support of two-thirds or more of both houses of the Diet and then be approved in a national referendum by a simple majority vote. Legislation setting procedures for such a referendum is still pending in the Diet. It was carried over to the current ordinary Diet session, which convened in January for a 150-day run. The LDP-New Komeito coalition is far short of a two-thirds majority in the Upper House. In addition, New Komeito remains reluctant to rewrite Article 9.

Meanwhile, Abe faces the need to raise the consumption tax to finance rising social security costs and stem a further rise in government debts. But he has decided to delay a sweeping overhaul of the tax system, including a possible hike in the currently 5% consumption tax rate, until after the next Upper House election.

Abe has set a goal of securing high growth rates. "Without economic growth, we will be unable to take effective measures to reverse the trend of fewer children and reconstruct government finances," Abe has said. He has said his government will aim to achieve high growth through tax breaks aimed at encouraging technological innovation in the private sectors, especially the information technology one, and thereby boosting productivity, a key condition for growth amid the rapidly greying - and even shrinking - population resulting from very low birth rates.

Rehabilitating the creaking social security system, including pensions, medical insurance, and nursing care insurance for the elderly, has emerged as a pressing task for the Japanese government, amid the rapid aging of society and continued decline in birth rates. The Japanese government finances remain in dire straits. Japan's fiscal condition is the worst among major industrialized economies, with the deficits held by the central and local governments totalling a staggering 1,000 trillion yen ($9 trillion). This figure translates into about 8.3 million yen per person in a nation of about 127 million people.

The consumption tax was introduced in 1989, but only a few months later, Prime Minister Noboru Takeshita was forced to resign. The tax rate was raised from the original 3% to the current 5% in 1997, after which consumer spending slumped and the country slipped back into recession. The LDP suffered a debilitating loss in the Upper House election held the following year, forcing Prime Minister Ryutaro Hashimoto from office.

Japanese diplomacy

Although the Year of the Dog ended nearly three months ago, Japan remains dogged by a host of foreign-policy challenges carried over from the old year.

Among those challenges, topping the agenda are resolving the crisis over North Korea’s nuclear program, achieving progress on the issue of North Korea’s past abductions of Japanese citizens, contributions to peace and reconstruction in Iraq and fully repairing relations with China and South Korea.

On the economic diplomacy front, Japan faces the task of accelerating Free Trade Agreements (FTAs) with trading partners while playing its part as the world’s second-largest economy, in kick-starting stalled global trade talks at the World Trade Organization (WTO).

To be sure, a landmark deal was reached in February at the six-party talks on North Korea’s nuclear weapons program. But it remains to be seen whether Pyongyang will actually makes significant progress toward denuclearization.

After six days of talks, delegates to the six-nation talks held in Beijing struck an accord on February 13 on initial steps for North Korea’s denuclearization. Under the agreement, Pyongyang has pledged to shut down and seal its Yongbyon reactor within 60 days, in return for 50,000 metric tons of fuel oil or economic aid of equal value. The closure of Yongbyon will be verified by international inspectors. The North will eventually receive an additional 950,000 tons of fuel oil or economic aid of equal value when it permanently disables its nuclear operations.

As part of the Feb.13 agreement, Japan and North Korea held two days of working-level talks in Hanoi in early March aimed at normalizing diplomatic relations. But the meeting collapsed, although both sides agreed to continue the talks.

Japanese Prime Minister Abe may face an increasingly deep dilemma stemming from his choice to make Tokyo's top priority goal in dealing with Pyongyang resolving the issue of the reclusive Stalinist state's past abductions of Japanese citizens, rather than denuclearization.

Despite recent significant progress on the nuclear standoff, Abe, a staunch anti-Pyongyang hardliner, has vowed to keep up pressure on North Korea over the abduction issue. Japan has also refused to join the other participants in the six-party talks on North Korea's nuclear-weapons program - the United States, China, Russia and South Korea - in offering energy aid to the country.

However, as the US, Japan's most important ally, has made a major shift in policy toward North Korea from confrontation to dialogue recently, there are some concerns here that Japan might find itself left out in the cold. China, Russia and South Korea have all consistently advocated a conciliatory approach to North Korea since the talks started in 2003.

To be sure, Washington has repeatedly ruled out the possibility of Japan's isolation and has given assurances that it will continue to coordinate its North Korea policy closely with Tokyo. But some Japanese remain unconvinced and even feel as if their nation has had the ladder suddenly taken out from under it.

If Pyongyang actually makes significant progress toward denuclearization, pressure may mount further at the six-party talks and elsewhere for Japan to ditch its policy of carrying a stick without offering any carrots, even without any progress on the abduction issue. But doing so would be politically risky for Abe.

His harsh stance on the abduction issue earned him a high degree of public popularity in Japan, enabling him to take the helm of the ruling Liberal Democratic Party (LDP) and to succeed Junichiro Koizumi as prime minister last September.

To be sure, the public support for Abe's cabinet has recently been plummeting sharply. But most Japanese still support Abe's hardline stance toward North Korea over the abduction issue. Many have found Pyongyang's actions unforgivable, lighting a nationalist fuse here. A recent opinion poll conducted by the Yomiuri Shimbun national daily showed that 81% of those polled support the Abe government's policy of not providing any economic and energy aid to North Korea until progress is made on the abduction issue.

"The election in summer are seen as alife-death election for Abe"
"The election in summer are seen as alife-death election for Abe"
Japan and the US have stepped up security cooperation, including on a joint missile-defence shield, in recent years, especially after North Korea launched missiles last July and then conducted its nuclear test last October, sparking international outrage and raising regional tensions. Many experts point out, however, that there are gaps between the two allies in the perception of a threat from North Korea.

Japan sees North Korea now as its biggest security threat. North Korea has already deployed an estimated 200 or so Rodong medium-range ballistic missiles that are capable of striking almost anywhere in Japanese territory. Meanwhile, the US gives top priority to preventing nuclear proliferation. One of the missiles launched by North Korea last July was a Taepodong-2 long-range ballistic missile that could reach some parts of the US Continent. But the Taepodong-2 exploded immediately after launch. Many experts say it will still take many years for North Korea to complete such a long-range ballistic missile.

Tokyo has been one of Washington’s staunchest allies in the war on terror by sending non-combat troops to assist US efforts in both Iraq and Afghanistan. Japan pulled its ground troops from Iraq last summer, but still operates airlifts in the region in support of the US-led forces. Japan’s navy has also provided fuel for coalition warships in the Indian Ocean to assist US operations in Afghanistan since 2001.

Although the Japan-US relations remain quite favourable, based on the solid security alliance, recent remarks by Japanese Defense Minister Fumio Kyuma ruffled the Bush administration’s feathers and caused unease in an otherwise fine relationship. Kyuma said the US should "stop being so bossy" about the issue of realigning US bases on Japanese soil and described the US-led war in Iraq as a "mistake". In an apparent snub to Kyuma, US Vice President Dick Cheney did not meet with him during a recent Tokyo visit.

Japan’s relations with China and South Korea are on the mend following Abe’s whirlwind tour of the two Asian neighbours in early October, immediately after stepping into the shoes of Koizumi as Japanese leader.

Japan's relations with China and South Korea had plunged to their lowest points in decades because of Koizumi's repeated visits to the war-related Yasukuni Shrine in Tokyo and other issues stemming from Japan's history of aggression and atrocities against its neighbours. Also, Tokyo is locked in separate territorial disputes with Beijing and Seoul, and the row over natural-gas reserves in the East China Sea is smouldering between Tokyo and Beijing.

Koizumi's pilgrimages to the Shinto shrine drew particularly angry protests from China and South Korea as implicit glorification of Japan's past militarism. The shrine is widely regarded as a symbol of Japan's militarist past, as it honours World War II Class A war criminals among some 2.4 million war dead. China and South Korea had rejected summit talks with Koizumi since 2005.

Abe's visit to Beijing was the first by a Japanese premier since Koizumi went there in October 2001. The summit talks were the first since April 2005, when Koizumi and Chinese President Hu Jintao met in Jakarta on the sidelines of the Asia-Africa Summit. Abe's meeting with South Korean President Roh Moo-hyun was also the first Japan-South Korea summit since November 2005, when Koizumi and Roh met in Busan on the fringes of an annual Asia-Pacific Economic Cooperation (APEC) summit.

Abe held separate talks with Hu and Roh again soon afterwards, in Hanoi in mid-November on the fringes of an APEC summit. The focus of attention in 2007 is whether Japan will be able to put relations with China and South Korea back on track. To this end, Japan is keen to further push ahead with top level contacts with China and South Korea.

Chinese Premier Wen Jiabao is to visit Japan in April, the first by a top level Chinese leader in nearly seven years. Abe may visit Beijing around October. This year marks the 35th anniversary of normalization of their relations in 1972. Japan also sees 2007 as a year to promote cultural and sport exchanges with China, as Beijing will host the Summer Olympics in 2008.

As Koizumi’s chief cabinet secretary, Abe made a secret visit to Yasukuni Shrine in April last year, five months before succeeding Koizumi as premier. Abe has refused to confirm the visit, saying that he will not say whether he has visited the shrine or plans to visit in the future.

Japanese economy

Japan has been emerging from a decade of stagnation, recession, and deflation. After a decade in the doldrums, the world’s second-largest economy marked its longest expansion since the end of World War II last November.

Many analysts are optimistic that the Japanese economy will keep expanding, at least through the end of 2007, on the strength of ongoing domestic private-sector demand. This bodes well for Prime Minister Abe and his ruling coalition in the election year.

The current expansionary phase that began in February 2002 surpassed the previous record growth spell of the 1960s, known as the 57-month-long “Izanagi” boom, which started a year after the 1964 Tokyo Olympic Games and ended with the 1970 Osaka World Expo.

Gross domestic product (GDP) has grown at an annualized pace of only about 2% on average in real terms during the current expansion phase. This growth rate is vastly eclipsed by the much faster rates logged during the past booms - 11-12% during the “Izanagi” boom and about 5% during the “Heisei bubble” boom of the late 1980s.

On December 19, the government finalized its economic outlook for fiscal 2007, which starts in April, as a government policy target. It projects the nation’s economy will grow at 2.0% in real terms - after adjustment for inflation - and 2.2% in nominal terms - before adjustment for inflation - in fiscal 2007.

However, the government revised its economic growth estimates for the current fiscal 2006 sharply downward due to weak personal spending, to a real 1.9% from an earlier projection of 2.1% and to a nominal 1.5% from an earlier projection of 2.2%. Although the government had earlier expected nominal growth to exceed real growth - meaning an end to deflation in terms of annual figures - in fiscal 2006, weak price rises have prompted it to project the end will be delayed into the next fiscal year.

However, there are potential risks to a continued economic expansion, such as signs of an economic slowdown in the United States, Japan's biggest export market. For resource-poor Japan, which imports almost all of its crude oil, stubbornly high prices for oil are also a matter of grave concern.

In late November, the US administration revised downward its growth forecasts for both 2006 and 2007, to 3.1% and 2.9% in real terms, respectively, from 3.6% and 3.3% predicted earlier.

"One major challenge is resolving the crisis over neighboring North Korea's nuclear program - a grave security concern for Japan."
"One major challenge is resolving the crisis over neighboring North Korea's nuclear program - a grave security concern for Japan."
Meanwhile, the Asian Development Bank (ADB) also predicted in early December that East Asia ex Japan will continue to grow at a healthy, but slower pace in 2007. Among other Asian economies, China - Japan’s biggest trading partner - will see its growth slow down to 9.5% from an estimated 10.4% in 2006.

The anticipated slowdown in the economies of Japan’s two biggest trading partners - China and the US - makes it all the more crucial for Japan to spur domestic demand. But personal consumption, a main component of economic activity accounting for about 55% of GDP, is losing steam.

Taking its cue from recent robust economic data, the Bank of Japan (BOJ) raised interest rates for the first time in seven months in February, by a quarter percentage point to 0.5%, in an attempt to rectify what the central bank itself views as the "abnormal" state of the credit policy.

The BOJ's nine-member policy board, including Governor Toshihiko Fukui, made the decision to raise its key short-term interest rate by a vote of 8-1 at the end of its two-day meeting. The target for the unsecured overnight call rate, which the BOJ uses as the key target rate in the short-term money market, was increased to 0.5% from 0.25%, effectively immediately. It is the first time since September 1998 that the key policy rate has been at 0.5% or higher.

The interest-rate decision was taken after Fukui proposed rate hikes at the policy board meeting earlier in the day. Kazumasa Iwata, one of the BOJ's two deputy governors, voted against the rate hikes. It is quite unusual for the votes to be split among the BOJ governor and deputy governors.

The BOJ policy board also decided to jack up the official discount rate - which effectively serves as the cap on the overnight interbank rate because the BOJ provides loans to banks at the rate through its Lombard-type lending facility - to 0.75% from 0.4% per annum.

Although most analysts had been anticipating rate increases in the near future, they were split over the specific timing, with some expecting the central bank to wait for a while to take action.

Fukui has repeatedly cited the dangers of keeping an ultra-easy monetary policy for too long and emphasized the need to carry out phased, small-margin interest-rate hikes to achieve sustained economic growth in the medium and long term.

The rate hikes are the first since last July, when the central bank ended its unusual zero-interest policy of nearly six years as the world's second-largest economy was continuing to recover and gaining strength after a decade in the doldrums. At the time the BOJ raised its target for the unsecured overnight call rate to 0.25% from effectively zero and the official discount rate to 0.4% from 0.1% per annum.

The BOJ had since been cautiously weighing the timing of its next rate hike, as personal consumption remains weaker than expected, and prices have failed to rise as much as expected in recent months.

The BOJ raised rates in February after concluding that the economy is expected to keep expanding moderately, led by the corporate sector, and that still weaker-than-expected consumer spending and prices are also expected to improve in the medium and long term.

Only several days before the BOJ’s rate hike, the government said Japan's GDP grew at a stronger-than-expected annual pace of 4.8% in real terms, or after adjustment for inflation, in the October-December quarter, the fastest pace in nearly three years and a significant increase from 0.3% in the preceding quarter. The high growth rate in the last quarter can be attributed to a favourable 1.1% rebound in consumer spending after the decline of the same percentage during the third quarter.

Economists have been split, however, over how the growth of personal consumer expenditure in the last quarter should be assessed. Optimists think that the drop in personal spending during the third quarter was a temporary phenomenon due to unseasonable weather and that a steady improvement in personal spending will continue.

Pessimists think that the growth in private consumption during the last quarter only served to offset the previous quarterly drop and that consumer spending remains weak. The Cabinet Office also left its monthly assessment of the economy unchanged in its February report, warning about weak consumption. Some economists have predicted that the GDP growth rate will greatly slacken in the January-March quarter.

Fukui has said since last spring that the driver of Japan's economic growth will gradually shift to consumer spending from corporate investment. But that apparently has not yet happened.

Consumption is weaker than expected, largely because of lagging income gains. Japanese wages still have not reversed their decade-long slide, even with the country's longest post-war economic expansion. While businesses plan to increase their capital expenditures at the fastest pace in 16 years in the current fiscal year, higher costs for raw materials and fuel and increasingly tough global competition make them reluctant to raise pay.

According to government figures, wages in Japan fell at the fastest pace in 16 months in December as companies pared winter bonuses. Monthly wages, including overtime and bonuses, fell 0.6% in December from a year earlier. As a natural result of this, consumers remain reluctant to loosen their purse strings as much as expected. Industry association figures show that supermarket sales in Japan dropped 3.8% in December from a year earlier, marking the 12th consecutive monthly decline on a year-on-year basis.

Even if salaries rise more quickly, many households appear more likely to choose to rebuild savings rather than spend. Most Japanese are increasingly concerned about a possible sharp surge in social-security and tax burdens amid the rapid aging of society and declining birth rates. In 2005, Japan's population began to decline for the first time since World War II. The country's working population had begun to shrink several years earlier.

Experts warn that the country's social-security systems - such as pensions, health care and nursing care for the elderly - will collapse unless there is a significant increase in social-security contributions, a reduction in benefits, or a tax increase. The benefits of the current economic boom have yet to spread fully to small businesses, rural areas and households.

In addition to consumer spending, prices remain weaker than expected. The domestic demand deflator, a barometer of domestic price trends, registered year-on-year negative growth for the first time in two quarters in the October-December period. The core Consumer Price Index (CPI), which excludes volatile fresh-food prices, rose a minuscule 0.1% in December from a year earlier and remained flat in January. The CPI had increased 0.2% in November. Many economists say that the CPI will re-enter negative territory in the not-too-distant future due to lower oil prices than the previous year. The Japanese government has yet to officially declare an end to deflation, the downward spiral of prices that has plagued the nation for many years.

"There is a Japanese term "Chototsumoshin", meaning "dashing forward recklessly", that uses the kanji characters for a boar charging ahead"
"There is a Japanese term "Chototsumoshin", meaning "dashing forward recklessly", that uses the kanji characters for a boar charging ahead"
Conclusions and recommendations

There is a Japanese term “chototsumoshin,” meaning “dashing forward recklessly”, that uses the kanji characters for a boar charging ahead. Without a crystal ball, it is impossible to predict precisely how the myriad of political, diplomatic and economic challenges facing the Abe government will play out during the rest of the year. But at least one thing seems to be clear: the prime minister will not to have a chance to dash forward to achieve his long-term agenda, especially a constitutional revision, if he fails to ride out what is seen by some as a life-or-death election for him this summer.

  • To survive the election, Abe needs to exert stronger leadership in addressing various issues facing the nation as well as his LDP.

  • Abe has vowed to address the issue of a widening social disparity, especially between rich and poor, but he has yet to produce tangible results.

  • Abe also has to ensure that most Japanese can feel the benefits of the current economic expansion. These things need to be done before the next Upper House election. As the future of the nation’s crumbling social security system is the issue of gravest concern for most Japanese voters, the Abe government needs to come up with a viable blueprint as soon as possible, rehabilitating the system and assuaging their growing concerns.

  • Many Japanese feel that Abe, a political blue-blood nicknamed the 'prince' for his good looks before becoming premier, is out of touch with the public feelings and concerns of ordinary Japanese citizens, especially regarding the income gap between rich and poor. A majority of Japanese people now favour revising the post-war constitution in general, but public opinion is split down the middle over whether to change Article 9. Abe still needs to do a lot to convince opponents and sceptics.