Japan, in my nearly forty years of observing and reporting on that country, has never been so delicately and dangerously poised. Australians, who have long relied on it as an economic powerhouse and ‘common interest’ partner, need to be paying close attention.
Consider three developments that have occurred just within the past few days: North Korea fired a ballistic missile that, for the first time, reportedly landed within Japan’s offshore economic zone––and was condemned by Tokyo as ‘an unforgivable act of violence’; Prime Minister Shinzo Abe appointed as his new Defense Minister a politician once barred from South Korea for her revisionist views on Japan’s wartime past; and the Abe government unveiled the country’s thirteenth stimulus package since the Global Financial Crisis in another attempt to revive an ailing economy.
The sharp swing to the right in Japanese politics that has occurred in recent years is linked to perceived threats from China and North Korea and anxiety resulting from unresolved weaknesses and imbalances in the Japanese economy. In a single week, we have witnessed how these factors can interact to escalate the problems and undermine policy responses to them. Let me explain.
The fundamental cause of weakness in the Japanese economy is lack of confidence. Low demand feeds deflation that leads to currency appreciation and a loss of international competitiveness. Since Abe returned to power in 2012, he has tried to revive economic activity (and inflation) by easing monetary policy, spending trillions of yen on stimulus measures and committing to structural reforms aimed at raising productivity. But ‘Abenomics’ has failed to deliver: deflation persists, economic growth is anaemic and industrial output is lower than it was a year ago.
This week’s stimulus package is the biggest overall since 2009: ¥28 trillion (A$363 billion) to be distributed over several years. About half this figure includes funding through public-private partnerships and other amounts not strictly government outlays. In a sign that the government is reaching the bottom of the fiscal barrel, the actual amount of new direct spending is just ¥7.5 trillion (A$97 billon). The rest consists mainly of low-interest loans or, based on the experience of the past two decades, phantom ‘new’ spending (i.e. not new stimulus, just part of an ongoing pattern of deficit spending). Accumulated public-sector debt from years of ineffectual pump priming has become a heavy drag on the budget and a serious policy constraint.
Similarly, the Bank of Japan appeared to signal this week that it might have used up its capacity for monetary easing. The central bank is reassessing the effects of its negative interest-rate policy and aggressive program of government bond purchases. Its decision to offer no more than a modest monetary easing this week, in support of the government’s stimulus package, indicates that some board members might feel the costs of pursuing ‘Abenomics’ are beginning to out-way the benefits.
Indeed, certain components of the government’s stimulus package are an implicit admission that previous efforts have contributed to social inequalities. While corporate profits have risen sharply, rewarding the investor class, wages growth has remained subdued, particularly for the growing legions of casual and part-time workers. Hence the government’s one-off payment of ¥15,000 (A$195) to 22 million low-paid workers, and why it’s easing criteria for enrolment in the public pension scheme and funding more university scholarships. These sorts of measures, while addressing genuine needs, are unlikely to add much to economic expansion in the near term, probably less than half of one percent of GDP growth. This is partly because Japan is already at or near full employment; it’s not a lack of jobs, but the proliferation of lower-paying jobs, that is contributing to the drag on consumption.
The stimulus package directs money into infrastructure projects including those intended to boost inbound tourism, increase exports of processed food and bring the magnetic-levitation (MAGLEV) train project to fruition. The second of these measures follows up on Abe’s structural reform in the agricultural sector, which has received praise from abroad. The absence of measures targeting structural reform in other sectors, however, has disappointed analysts.
The market’s response to the various announcements has been to push up the value of the yen against the US dollar, the opposite of what the Japanese economy needs since it hurts exporters and feeds deflation.
Japan is not going broke. There are vast, stagnant pools of money in the economy in the form of corporate cash reserves, long-term bonds held by pension and insurance funds, and the savings of older Japanese. A lack of confidence is holding back companies from investing, bondholders from divesting, and retirees from spending the economy back to stronger growth. Meanwhile, the ruling coalition’s conservative social agenda precludes the use of other macroeconomic levers such as immigration, and its hawkishness on constitutional revision adds to the confidence-sapping unease.
Japan, of course, is not primarily responsible for the tit-for-tat belligerency on the Korean peninsula. Nor is it mainly to blame for China’s provocative actions to enforce territorial claims in the region. It must, however, accept some responsibility for the rise in tensions, which it is prone to blame solely on ‘reckless’ Koreans or ‘bullying’ Chinese.
A case in point is the appointment this week of Tomomi Inada as Defense Minister. Inada, a protégée of Abe’s, who says she would make an ideal future prime minister, is one of the more articulate and clever right-wing revisionists now dominating the ruling party. The 57-year-old lawyer, who entered parliament in 2005, has been active throughout her professional career supporting efforts to overturn the historical narrative of the Tokyo War Crimes Tribunal.
Inada does not openly repudiate the decisions of the court––to do so would place Japan in breach of its commitments under the San Francisco Peace Treaty of 1952––but, like Abe, she disparages the ‘un-Japanese’ reforms of the American-led postwar occupation and the historical view of Japan as a wartime aggressor. She has described the work of the Tokyo Trials president, the Australian Sir William Webb, and his co-judges as ‘sloppy’. Since her appointment, she has ducked questions about her opinions and intentions, except to say, concerning whether Japan fought a war of aggression from 1932 to 1945, ‘it depends on your point of view’. There seemed little doubt where she stood, however, on the occasion she posed for a photograph alongside the leader of the far-right National Socialist Japanese Workers’ Party, a Holocaust denier who admires Adolf Hitler. (Inada later denied supporting the NSJWP.) She has cast doubt on the Nanjing Massacre and described the ‘comfort women’ mustered into brothels by the Japanese military as willing prostitutes legally recruited. Inada is a regular visitor to Yasukuni, the Shinto shrine where convicted war criminals are honoured alongside the nation’s fallen. A Japanese magazine quoted her in 2006 as saying: ‘Yasukuni Shrine is not the place where you pledge never go to war again, but it must be the place where you pledge to “follow the dead enshrined there if something happens to Japan”.’ Five years ago, Inada said Japan should consider possessing nuclear weapons ‘as a national strategy in the long term’, a declaration she avoided during her first news conference as Defense Minister this week, saying it was not an option ‘for now’.
Like many Liberal Democratic Party politicians, Inada is a member of Nihon Kaigi (Japan Conference), an influential lobby group that agitates on behalf of nationalist and revisionist causes.
When I started reporting from Japan in 1979, the extreme right wing was largely confined to the sidelines of public life. Loudspeaker vans adorned with Japanese rising-sun flags and blaring martial music cruised the streets, but they were more an object of ridicule than a reflection of popular feeling. Occasionally, conservative politicians or military chiefs would cross the line, expressing revisionist opinions or advocating remilitarization, but they would fall on their swords and pass out of sight. What was then considered the fringe has now moved to the centre of Japan’s political discourse.
The choice of Inada as Defense Minister says to the nations that Japan invaded last century, ‘Take offense if you like, but we’re no longer bound by your old grievances’. As Japanese conservatives step up their campaign to rewrite history and restore the nation’s pride, as they see it, they inevitably feed mistrust and resentment among regional players. For every action there is a reaction, until hopes of reaching common ground on territorial disputes or demilitarization, and other confidence-building measures, slip further out of reach.
Neither ‘Abenomics’ nor any other formula can rescue the Japanese economy so long as the government steers the nation towards confrontation while ignoring the lessons of history. When Abe forced through laws last year enabling the right to ‘collective self-defense’, i.e. providing military support to an ally under threat, he said any use of the right would be limited to situations in which Japan itself was directly threatened. But here is what the Washington-based Center for Strategic and International Studies recently reported:
In April of this year, Taku Yamasaki, former vice president of Japan’s ruling Liberal Democratic Party, visited Beijing. He is known to have close ties with officials in China and met with senior government representatives and members of the CCP. The first priority of his visit was to share his concerns about developments in the South China Sea. According to a member of his delegation, Yamasaki noted that if tensions in the South China Sea continue to increase, Japan could send vessels of the Self-Defense Forces to the area to help protect U.S. vessels, a scenario that just became possible under new security legislation passed in Japan’s Diet (parliament) last year. He explained that tensions in the South China Sea could significantly change the landscape of the region’s power balance. Song Tao, the head of International Department of the CCP, paid close attention to Yamasaki’s remarks and promised to report to leaders of the party.
For a member of Japan’s ruling elite already to be threatening action under the principle of collective self-defense contradicts Abe’s reassurances about its ‘limited’ application.
On a recent trip to Japan, I was struck by the deep disappointment over Australia’s decision not to go with the Japanese submarine bid. The symbolism of the bid outweighed even its considerable dollar value, since it would have been the first major deal under Abe’s new policy to permit the export of military technology. The submarine project was also seen by Tokyo as a way of linking Australia into Japan’s response to a more assertive China––one of the reasons, in fact, that Canberra chose the less controversial French bid.
Japan’s options seem to be diminishing, rather than expanding, as it tries to rebalance after decades of lost economic vigor. Turning old enemies into new partners, or just maintaining existing postwar partnerships, has become more difficult as all nations reassess what is in their own self-interest. A Japan that denies responsibility for its militarist past, with all the pain and suffering it caused, is not likely to be seen as a reliable partner for the future. If the nation that emerged from defeat and occupation in 1952 is to be jettisoned, as a travesty of its true identity, the revisionists need to explain to the Japanese people––and to their neighbours and friends––how a ‘restored’ retro-Japan will sustain the prosperity and peace that has prevailed for 70 years.
Walter Hamilton reported from Japan for the ABC for eleven years.