30 Asia The EconomistSeptember 5th 2020
2 with the European Union and a bilateral
deal with America. That, along with lots of
golf and flattery, kept him in Donald
Trump’s good books. “If not for Abe, we’d be
treated like Moon Jae-in or Merkel,” says a
former adviser.
Mr Abe also dealt deftly with China (see
Business section). When he took office, the
two countries were close to conflict over
disputed islands. Mr Abe had hoped Xi
Jinping would visit Japan this year, before
covid-19 intervened. But he also encour-
aged neighbours to stand up to China. Un-
der the banner of a “Free and Open Indo-Pa-
cific”, Japan has tried to uphold freedom of
navigation in Asian waters and liberal prin-
ciples in Asian markets. He built security
ties with Australia, India and countries in
South-East Asia. He created a strategy to
link Japan’s piecemeal aid projects, quietly
promoting “quality infrastructure” as an
alternative to China’s Belt and Road Initia-
tive. “No other [Japanese] politician has
such a sixth sense in foreign policy,” says
Miyake Kunihiko, a former diplomat.
Mr Abe failed in his efforts to revise the
pacifist constitution that America imposed
on Japan after the war. But he strengthened
the armed forces, reinterpreting the con-
stitution and passing national-security
and secrecy laws that, in practice, make it
possible for Japan’s “self-defence forces” to
deploy abroad. Were it to attack Taiwan,
China would have to “assume it would face
a common us-Japan front”, notes Michael
Green, a former director for Asia on Ameri-
ca’s National Security Council.
Such changes were controversial, but
Abenomics kept voters happy. Mr Abe in-
stalled a new governor at the Bank of Japan,
Kuroda Haruhiko, who unleashed a “ba-
zooka” of monetary easing (see Free ex-
change). That helped reverse years of defla-
tion, even if a 2% inflation target was never
hit. Unemployment fell to its lowest rate in
decades. Reduced corporate taxes and a
weaker yen boosted firms’ profits. The Nik-
kei stockmarket index has reattained levels
last seen in the early 1990s.
Mr Abe’s government introduced cor-
porate-governance codes that led to more
outside directors on boards. Nicholas Be-
nes, who helped draft them, calls the
changes “unstoppable”. Japan’s state pen-
sion fund, the world’s largest, shifted to-
wards investing in stocks rather than gov-
ernment bonds. A new index, the jpx400,
focused on good governance and high re-
turns on equity, helped spur corporate re-
form. “The bluest of blue-chip companies
were vehemently opposed,” says Kathy Ma-
tsui of Goldman Sachs, an investment
bank. But investors swooned. In a research
note, Morgan Stanley, another investment
bank, compared Mr Abe’s legacy to those of
Ronald Reagan and Margaret Thatcher.
Mr Abe sought to lessen the damage
caused by Japan’s swiftly ageing popula-tion. His government expanded parental
leave and child-care services. Female la-
bour-force participation grew from 63% to
71%, higher than in America. “Abe main-
streamed the whole concept of gender div-
ersity,” shifting the context from human
rights to economic growth, says Ms Matsui.
Mr Abe also allowed in more immigrants.
The number of foreign workers in Japan
more than doubled during his tenure.
Critics see plenty of shortcomings in Mr
Abe’s economic policies. Until covid-19, his
time in office was largely free from external
shocks. The biggest injuries were self-in-
flicted: two ill-timed increases in the con-
sumption tax, in the name of fiscal probity,
both of which pushed the economy into re-
cession. As a result, his government mus-
tered only meagre economic growth of 1.1%
a year on average during his eight years in
office, less than the 2% he promised. Com-
panies saw their profits rise, but many sat
on them. Women got more jobs, but notenough promotions. Average wages fell
after accounting for inflation.
Despite the increases in the consump-
tion tax, Mr Abe also leaves behind a mas-
sive public debt, currently 238% of gdp.
Markets seem unworried: the yield on
many government bonds is negative. But
the debt mountain may nonetheless bur-
den future generations. “People assume
this is free money but it’s not: it will have to
come back in terms of higher taxes or
smaller services,” says a former official at
the Bank of Japan.
Although Japan has suffered a relatively
small number of deaths from covid-19, es-
pecially relative to its population, the pub-
lic is unhappy with Mr Abe’s handling of
the pandemic. The national government
was slow to adopt measures to curb its
spread, leaving local leaders such as the go-
vernor of Tokyo, Koike Yuriko, to lead. A
string of corruption scandals also dented
his standing. Shortly before his resignation
the approval rating of Mr Abe’s government
was 34%, the lowest since he returned to
office. In his resignation speech, Mr Abe la-mented that he was unable to amend the
constitution or solve a territorial dispute
with Russia. Many Japanese feel he put
more energy into his ambition to reverse
these legacies of the second world war than
he did into tending to the economy.
His successor will presumably have less
interest in fighting these old battles. Man-
aging the effects of covid-19 will come first:
the economy shrank by a record 7.8% in the
second quarter of this year. That makes it
no bigger than when Mr Abe became prime
minister in 2012. The government has
propped up companies and given cash to
consumers; bankruptcies are down this
year. But as the slump persists, a painful re-
structuring will have to take place, says
Hoshi Takeo of the University of Tokyo.
Japan needs a “productivity revolution”,
says Ms Matsui. The tax code and the la-
bour market stifle startups and innovation.
The government uses archaic computer
systems. No one in Japan was surprised to
find fax machines being used to tally co-
vid-19 test results. “We have to erase all of
the inefficiencies and redundancies,” says
a member of a government economic advi-
sory council.
The next prime minister cannot, how-
ever, ignore foreign affairs. China is ex-
panding its presence at sea. Japan is at odds
with South Korea; Mr Abe could never mus-
ter the patience with Moon Jae-in, its presi-
dent, that he showed with Mr Trump. Ja-
pan’s pro-coal stance and the closure of its
nuclear reactors after a disaster in 2011 have
made it a climate laggard.
The ldp will choose its next president
on September 14th, in a vote of its members
of the Diet and some regional representa-
tives. In the interests of continuity most of
the main factions have endorsed Suga
Yoshihide, the chief secretary of the cabi-
net. If he wins, he would serve out the re-
mainder of Mr Abe’s term, which was due
to end in September next year. Then a
party-wide election will be held, which
should attract a broader crop of candidates.
The son of a farmer from rural Akita Pre-
fecture in the north of Japan, Mr Suga has a
reputation for diligence (in a country
known for overwork) and as a master of the
bureaucracy. His instincts appear less
nationalist than Mr Abe’s. He has advocat-
ed more immigration and freer trade. He
urged Mr Abe to focus on the economy in-
stead of visiting the Yasukuni Shrine, a
controversial war memorial, in 2013.
Mr Suga has little experience on the
world stage. He is not especially popular
among either the ldp’s broader member-
ship or among Japanese at large. He will
have many rivals in the party. “A lot of peo-
ple are chomping at the bit,” says Sheila
Smith of the Council on Foreign Relations.
Ominously, long-serving prime ministers
have typically been followed by strings of
short-lived, unpopular governments. 7Helping the aged
JapanSources:MinistryofHealth,Labour
andWelfareofJapan;WorldBank *Aged15-6472
70
68
66
64
622008 1915Female workforce*
participation rate, %
2.01.51.00.50
2008 1915Number of foreign
workers, m