One year later, Japanese PM has big 'to do' list
published : 25 Dec 2013 at 00:49
A year after a landslide national election, Japanese Prime Minister Shinzo Abe is riding high as his plan to rescue the economy earns praise at home and abroad, but chinks in his armour are beginning to show.
Japan's Shinzo Abe after he was elected by the parliament as Japan's prime minister waves to the media upon his arrival at the prime minster's official residence in Tokyo on December 26, 2012.
The unprecedented policy blitz, dubbed Abenomics, ushered in growth that led G7 nations in the first half of the year, stoked a sizzling stock market rally and offered a tantalising end to years of deflation.
When Abe formed his cabinet on December 26 he had the backing of a large proportion of the population to follow through with a pledge to reverse two decades of lacklustre growth and debilitating deflation.
Then at the beginning of 2013 he declared that "Japan is back" in a speech to the New York Stock Exchange, saying his prescription of big government spending and monetary easing would reinvigorate the world's number-three economy.
He embarked on a roadshow abroad to sell Brand Japan, including signing a nuclear reactor deal in Turkey and focussing on fast-growing economies in Southeast Asia.
"This has been a very hectic year, travelling a lot overseas," Abe said in speech last week, adding he visited over two dozen countries since election night.
His globetrotting burnished an image of a strong leader committed to getting things done in a country where the pace of policy is often glacial.
And Tokyo's winning bid to host the 2020 Olympics gave national pride another shot in the arm, as well as promises of further economic benefits.
"Abenomics definitely deserves praise," said Ivan Tselichtchev, economics professor at Niigata University of Management. "It has greatly improved sentiment among investors and consumers which is a positive for economy."
Applause for the two-time premier is a far cry from 2006 when his term ended in ignominy and illness after just a year in office.
This time around, Abe's efforts are bearing fruit. His policies and those of his new central bank governor Haruhiko Kuroda helped sharply weaken the yen -- the unit has lost a fifth of its value against the dollar this year, giving a boost to exporters -- while the stock market has surged more than 50 percent to a six-year high.
Economic growth slowed in the third quarter, but business confidence remains at a six-year high, while a key inflation indicator in October rose at the fastest pace since the late Nineties.
But observers say firms must now raise wages so employees have more to spend, driving the economy and giving the corporate sector confidence to expand.
An increase in pay packets is even more crucial ahead of a sales tax rise next year to 8.0 percent from 5.0 percent, a move aimed at shrinking Japan's huge national debt, proportionately the worst among wealthy nations.
The International Monetary Fund, among others, has welcomed Tokyo's efforts to get its fiscal house in order, but the tax rise has stoked fears it will derail a recovery. The last sales tax rise, in 1997, foreshadowed the fall into deflation.
'I'm worried about our future'
And while the economy is moving to move in the right direction, there is a growing disillusionment with the leadership.
An unpopular state secrets bill, raw tensions with China and South Korea, and growing doubts about Tokyo's print-and-spend economic policies are beginning to test Abe's popularity.
"My husband's salary has not changed in the past eight years and now rising prices are affecting the family's budget," said 42-year-old Tokyo resident Yasuyo Sakata.
"Abenomics is for other people. I haven't felt any positive impact from it, and I'm worried about our future."
Criticism like Sakata's is a worry for Abe, whose place in the history books rests on him convincing ordinary people that his much-lauded policies will help them, rather than just lift company profits and share prices.
For detractors such as Noriko Hama, economics professor at Doshisha University in Kyoto, Abenomics is "a bunch of all the wrong ideas for all the wrong reasons", a money-printing exercise that will saddle Japan with more debt.
Critics and advocates alike have warned that promised economic reforms -- including more flexible labour markets and free trade deals -- are essential for the growth plan to work.
"Progress on structural reforms has been disappointing," Capital Economics said.
While Abe's first year largely focused on the economy, he wobbled on the diplomatic front, and ties with China and South Korea, soured over separate territorial disputes, remain poor. The spectre of an unpredictable North Korea also lurks in the background.
His donations to a controversial war shrine and pledges to spend billions of dollars building up the armed forces has unnerved neighbours wary of Japan's imperialist aggression in the 20th century.
The military is limited to self-defence under Japan's pacifist constitution -- a restriction Abe would like to change.
His government continues to face opposition over plans to re-start nuclear reactors shut down after the 2011 Fukushima crisis, and a broad state secrets law lambasted by critics as "the largest threat to democracy in post-war Japan".
Abe's first year has gone "smoother than we thought," said Shinichi Nishikawa, politics professor at Tokyo's Meiji University.
"But the real tests are still ahead -- next year will be crucial for Abe, and for Japan."