Japan: With Abe Retained As PM, Japan Aims To Lead The Region

Last Updated: 26 November 2018
Article by Junichi Kato

With Prime Minister Shinzo Abe beginning his fourth term as leader of Japan, his policy goals are becoming increasingly clear. He aims to lead Japan to regain its economic power, and to be ready to step up on the world stage.

Abe recently won a third consecutive three-year term as leader of the Liberal Democratic Party (LDP), ensuring a continuation of his "Abenomics" policies and cementing his reputation for strong and stable leadership.

Abe is now set to remain PM until September 2021, making him the country's longest-serving premier under the constitutional system. No Japanese leader has held power for that long since shogun Tokugawa Ieyoshi in the mid-19th century.

He is also enjoying strong approval ratings; support for the LDP rose seven points to 45% in a recent poll by Nikkei, with 72% of those who backed him in the leadership election giving high marks to his signature economic policies - all very good for business in Japan.

Those strong ratings are largely due to Abe presiding over a strong Japanese economy, as well as his presence on the global stage. Yet that global stage has put a slight cloud over Japan's future, especially with the increasingly inward-looking policies of the US; having Abe at the helm gives Japan the best possible chance to negotiate strong roles for the country internationally. Next year Japan will have an historic imperial throne succession and chair the G20 Summit; in 2020 it will host the Olympics and Paralympics. The country's leaders want to move on from its declining birth rate and aging population to build a Japan full of hope, embracing female workforce participation and reforming the social security system. Indeed, 2019 is seen by some as a turning point for Japan, a time to pioneer a new future and lay the foundation for peace and prosperity in a new era of Asia. Can Abenomics power that future, and continue to make good business sense for Japan?
Analysts say both globalisation and digitisation have transformed the modern economy, and the 20th-century model driven by financial institutions and a massive manufacturing sector are no longer viable. Yet Abe has remained in power largely thanks to the pragmatic, business-oriented policies he's pursued with Abenomics.

Abenomics has been powering the Japanese economy since December 2012. The first stage focused on aggressive monetary policy, flexible fiscal policy and a growth strategy; this was revised in September 2015 to three new "arrows", a means to build "a robust economy that gives rise to hope". This meant targeting the largest nominal GDP in postwar history, 600 trillion Yen (at the time, nominal GDP was 530 trillion Yen); reforming and incentivising childcare support; and creating a social security system that "provides assurance".

And the economy has certainly benefitted: Japan hit the target 3% nominal GDP growth in 2015. Growth then slowed, and 2016 experienced just 1% growth; in 2017, though, growth returned, and nominal GDP rose to 1.7%. Still, 2017 sat at 549 trillion Yen GDP, which is not so far from the target 600 trillion Yen by 2020.

Though Japan has been struggling to get out of its deflationary tendencies for almost two decades, and the inflation rate (set by the Bank of Japan) is behind target, prices have been steadily recovering. And with FDI inward flows steadily growing over the last five years, there is still hope targets will be reached.

Focus is now on both tradition and the digital revolution

And so as Prime Minister Abe steps into his third term as leader of Japan, his policy goes through another revolution. The next three years will involve five targets, some a step-change from previous arrows, some entirely new. He aims to lead Japan to regain its economic power, and to be ready to step up on the world stage. His economic policy, and his pursuit of the TPP and EPA as priority, will help this aim.

Naturally, to ensure continued growth Japan must make itself more resilient to natural disasters, and this is within the new targets as well. Abe's government aims to implement disaster prevention and mitigation in the next three years.

Economic growth, of course, is still important, and that GDP target of 600 trillion Yen still stands. Japan will take its place at the frontier of developments in AI and robotics, realising the fourth industrial revolution and pioneering a new horizon for the Japanese economy. In his policy statement, Abe speaks of creating an economy "where anyone can pursue their dreams".
The social security system reform continues, enabling all generations to have a stable and secure society. This is particularly important for Japan. Abe's government has long focused on workforce participation, rewarding good work, and ensuring the elderly have care so that family members don't leave work to look after aging parents.

New to the policy, though, is a focus on the beauty and tradition of Japan. Famed the world over for its traditions, Japan wants to hold onto what makes it unique while finding its place in the 21st century.

There's also a target of 40 million tourists visiting the country, the influx of foreign tourists no doubt fuelling further economic growth as they spend. The government pledges to form 100 world-class Destination Marketing Organizations and to train tourism management specialists before 2020, the year of Japan hosting the Olympics. National parks and cultural properties will be key as globally-attractive travel routes are formed. The tourist experience is also set for an upgrade, with additional free WiFi spots and 3,000 ATMs equipped for international transactions.

Finally, and again signalling Abe's intention that Japan takes a strong seat on the world leaders' stage, the government aims to establish a foundation for a new era of peace and prosperity in the Asia Pacific region and with Europe. This has already been seen with the EU-Japan EPA, and Abe's mention of the UK possibly joining the TPP – which comes into effect on 30 December 2018 - post-Brexit. But Abe also aims to take a lead in resolving the North Korea issue, resolving territorial disputes, concluding the Russia-Japanese Peace Treaty, and finally settling postwar diplomacy by pushing the relationship between Japan and China to a new stage.

TMF Japan can help you take advantage of Abenomics

It's certainly an exciting time to be doing business in Japan, and we believe Prime Minister Abe's successful election is a very good thing for our clients in the country as stability is needed to keep Abenomics on track.

Be warned, though: Abe has issued a warning to Japanese businesses that they must get ready for the planned consumption tax hike next year. He told an emergency cabinet meeting last week that, despite rumours it would be delayed again, the government does plan to raise consumption tax in October 2019 from 8% to 10%.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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