Japan After Koizumi: The Abe Opportunity

Prime Minister Junichiro Koizumi could not have picked a better time to step aside. He was so successful in last year’s election that his party has nowhere to go but down. Moreover, Koizumi’s strategy involved attacking the party’s political machine, one foundation of its long-term rule. Hence the victory may actually leave the LDP more vulnerable to a future loss of power. Meanwhile, Koizumi postponed the tax hikes and spending cuts necessary to address the huge fiscal deficit. He finally passed his signature postal privatization bill, but he left the details of implementation to his successor. He brought a chill to Sino-Japanese relations by repeatedly visiting Yasukuni Shrine, with officials in both countries conceding that any improvement in bilateral relations would have to wait for the next prime minister.

Enter Shinzo Abe—the son of foreign minister Shintaro Abe and the grandson of Prime Minister Nobusuke Kishi—at age 52 the youngest prime minister in the postwar era. Abe and his new team will have to perform brilliantly to avoid electoral setbacks for the LDP, contentious battles over fiscal reform, and continuing tensions with China. Abe is certainly affable enough, but he lacks Koizumi’s charisma, so he will have to rely more on building consensus and formulating the right policies.

Foreign policy

Abe’s greatest opportunity comes in foreign policy. Koizumi had boxed himself into a corner with his visits to Yasukuni Shrine, a war memorial that hosts some Class A war criminals and a museum with an alarmingly “revisionist” interpretation of Japan’s role in the Second World War. Koizumi felt he would lose credibility and send a dangerous signal to the Chinese leadership if he were to back down and stop visiting the shrine, so he simply resigned himself to the fact that Sino-Japanese relations would not improve under his watch.

Hence Abe has a real chance to improve ties with China by simply not being Koizumi. Abe has not revealed whether he plans to visit Yasukuni as prime minister. He has visited in the past, and he has expressed support for the prime minister’s right to do so. But he is likely to refrain from visiting, or at least to delay a visit, and to make Sino-Japanese relations an early priority.

Abe has vowed to stake out a more assertive foreign policy and to revise the Japanese constitution. If he could do this in a constructive way, it would benefit not only Japan but the Asian region and the global community. To do so, he would have to revise Article 9 of the constitution to allow Japan to participate in collective defense, and yet reaffirm Japan’s commitment to peaceful diplomacy and its renunciation of unilateral military action at the same time. And he would have to address Japan’s war responsibility in a manner that would moderate – and not exacerbate – Chinese and Korean bitterness on the issue. Unfortunately, Abe’s efforts to chart a more “normal” foreign policy are more likely to rekindle tensions with its neighbors. Abe’s cabinet selections suggest that he will emphasize foreign affairs over economic policy, and that he will favor upgrading Japan’s military role and capabilities. He reappointed Foreign Minister Taro Aso, who has antagonized the Chinese with his public remarks. He installed Fumio Kyuma, who supports upgrading the Defense Agency to ministerial status, as its new director general. And he appointed Yuriko Koike, a former environment minister, to the newly created post of national security adviser.

Domestic politics

The 2005 election was the crowning achievement in Koizumi’s campaign to save the LDP by attacking it. Koizumi undercut the party machine directly by reducing public works spending and indirectly by promoting reform of the postal finance system and the special public corporations that channel much of this spending. When members of his own party voted against his postal privatization bill in the Lower House last year, he threatened to dissolve the Lower House if LDP members prevented passage in the Upper House. When the bill failed, he not only called the election but also ousted those LDP Lower House members who had voted against the bill from the party and sponsored “assassin” candidates to run against them. Koizumi shrewdly capitalized on public frustration with old-style LDP politics, and persuaded voters that they could do more to change the LDP by voting for it than against it. The LDP not only emerged from the election with a huge majority in the Lower House – booming from 212 to 296 seats – but also a more even balance of support from urban and rural districts, as opposed to the usual pattern of stronger support in rural areas.

Abe will have to turn to electoral politics immediately, as the party faces two by-elections in October and then an Upper House election next July. The Upper House seats that are up for election (half of the total seats) benefited from a Koizumi boost in 2001, so the LDP will be hard pressed to hold on to its current strength. Moreover, Koizumi’s success in 2005 relied on his own personal charisma and a brilliant yet unsustainable strategy of running against his own party machine. LDP leaders have already begun to retreat from this strategy as they negotiate over reinstatement in the party with the 13 LDP rebels (now independents) who defeated Koizumi assassins in last year’s election.

The economy

Koizumi conveniently deferred the unpleasant task of addressing Japan’s huge government debt, now the highest among developed countries at 170% of GDP. Abe would like to postpone the tough choices as well. The government announced an initial scheme this July, in which it would count on steady economic growth but phase in spending cuts and then tax increases. Abe appointed Hidenao Nakagawa, a key architect of the scheme, as secretary general of the LDP, suggesting that he will probably follow through with the gist of the plan. He has pledged, however, to postpone tax hikes until after the Upper House election. Sadakazu Tanigaki, one of Abe’s rivals for the premiership, had spelled out a much more detailed program for fiscal rehabilitation, including substantial hikes in the consumption tax. Tanigaki now finds himself conspicuously absent from Abe’s leadership team.

Meanwhile, Abe will explore ways to portray himself as a gentler alternative to Koizumi by addressing public concern over growing inequality. To date, Abe has proposed a “rechallenge” program to give public-sector jobs to part-time workers and to use public financial institutions to help failed businesses start over. As prime minister, he will probably also address regional inequalities with programs targeted at depressed rural areas.

Implications for the United States

So what should the United States expect from the Abe administration? Abe is likely to place a high priority on improving Sino-Japanese relations and to schedule a top-level dialogue soon. This should bring a modest improvement in bilateral relations in the short term, but Abe may provoke new tensions as he shifts toward charting a more assertive foreign policy and revising the constitution. Meanwhile, any remarks from Aso or Abe himself that carry an anti-Chinese tone could make relations considerably worse. The United States has tried to stay out of Sino-Japanese squabbles in the past, but U.S. officials are increasingly aware that these disputes affect American interests by undermining regional cooperation on everything from trade liberalization to North Korea.

Koizumi strengthened the U.S.-Japan security alliance with strong support for U.S.-led military action in Afghanistan and Iraq. This has not removed some underlying tensions in the bilateral relationship, however, and these may well surface under Abe. Specifically, the Japanese people remain concerned about the status of U.S. military bases in Japan and about Japan’s subservience to the U.S. on key foreign policy issues. Abe has affirmed that he views the U.S.-Japan alliance as the central pillar of Japan’s foreign policy, yet he also favors a foreign policy that is more autonomous from the United States. If his administration differs with the United States on core issues – such as coping with Iran, for example – this will inevitably generate tension in the U.S.-Japan relationship.

Abe first garnered public acclaim within Japan by taking a tough stand with North Korea on the issue of Japanese citizens abducted by the North Korean regime. Unfortunately, Abe may have learned the wrong lesson from this experience. If he stresses nationalist themes to appeal to the Japanese voters, this could undermine Japan’s relations with the United States as well as with China and Korea.

Since the LDP is now less reliant on the rural vote, it could be slightly more willing to make concessions on agricultural trade issues. At the same time, however, the erosion of the LDP’s traditional support base increases the chance of political volatility, as the LDP is likely to lose seats in the next Upper House election and it could even lose power in a future Lower House election. This volatility could make Japanese foreign policy less predictable, and more vulnerable to swings in public opinion.

On economic issues, the days of U.S.-Japan trade wars are over, but the U.S. government will continue to press for progress on regulatory reform and improvement in the climate for inward foreign direct investment.

The Abe legacy: opportunity lost?

So what will be the Abe legacy? A close look at Koizumi’s record offers the best clues we have at this point. Japan’s economic transformation actually relied much less on Koizumi himself than is widely believed. As outlined in my recent book, Japan Remodeled, government policy reforms and corporate adjustments have combined to produce an economic model characterized by more selectivity in business partnerships, more differentiation across sectors and companies, and more openness to foreign players. This process has been driven more by the bureaucracy and the private sector than by the prime minister, so it is likely to continue under Abe as well.

Koizumi himself deserves more credit for the LDP’s own transformation and its stunning electoral success, so Abe will not be able to match this performance. The question is whether he will oversee a modest erosion in the party’s support, or a steep decline.

Likewise, Koizumi is more responsible for the deterioration in Sino-Japanese relations, so Abe has his best chance for a positive legacy in this arena. Given his past penchant for populism and his nationalistic inclinations, however, the odds are better than even that Abe will squander his opportunity.