A Win For Abe And Japan: Challenges Lie Ahead

Prime Minister Shinzo Abe and his Liberal Democratic Party (LDP) achieved a landslide victory in the snap election held Sunday, assuring that his ruling coalition retains its two-thirds majority in Japan’s lower house. It also makes it very likely that Abe will be selected next year to continue to head the LDP. The LDP faced an opposition that was weak and divided. Abe’s popularity has recovered from damage done by several scandals earlier in the year, helped by his tough statements in reaction to threatening actions by North Korea and a strong economic record. Although the win may turn out to be bullish for Japan’s economy and stocks, the geopolitical implications may be even more important.

Abe has made clear his strong desire to amend Japan’s pacifist constitution, which contains restrictions on defense spending. His hand has been strengthened by this election, the increased threat from North Korea, and the signals from President Xi Jinping that China will follow a more assertive foreign policy. The uncertainty about US foreign policy under President Trump probably adds to Japan’s national security concerns. However, the Japanese public remains divided on the sensitive self-defense issue, and countries in the region are at best uneasy about the prospect of a militarily stronger Japan, which is understandable in view of history. It will take time for Abe to achieve any change in the constitution, which would first be subjected to a public referendum. But the pressure in that direction will be strong, with defense spending surely rising. A stronger Japan will change the geopolitical balance in the region, a development the United States should welcome. China and North Korea will view it adversely.

The prospect for Japan’s economic policy is a continuation of “Abenomics,” which has led the economy to expand for six straight quarters, with unemployment below 3%, the lowest rate in 23 years. This policy consists of three “arrows”: ultra-easy monetary policy under the leadership of Bank of Japan Governor Haruhiko Kuroda, fiscal stimulus, and structural reform. The first two arrows have been pursued aggressively, and this will continue. The Bank of Japan will continue to defend its yield target of “around 0% on ten-year government bond yields” and will avoid any indication of tightening its monetary policy stance. The government’s stimulative stance on fiscal policy is also unlikely to be changed, with increased defense spending helping to offset the effects of a scheduled sales tax increase next year.

1 2
View single page >> |

Disclaimer: The preceding was provided by Cumberland Advisors, Home Office: One Sarasota Tower, 2 N. Tamiami Trail, Suite 303, Sarasota, FL 34236; New Jersey Office: 614 Landis Ave, Vineland, NJ ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.