Japan’s reform momentum is under threat. Prime Minister Shinzo Abe’s approval ratings have crashed, ending a period of unusual political stability. The response is more likely to be populist spending than making further painful, but necessary, structural changes to the world’s third-largest economy.
Voters have punished Abe and his ruling Liberal Democratic Party for a combination of scandals, gaffes, and general government complacency. Earlier in July, the party was routed in regional elections in Tokyo, and on Sunday an independent candidate won the mayoralty of Sendai. Recent polls show Abe’s support tumbling below 30 percent — a threshold that often triggers succession battles.
That imperils Abe’s plan to win a third three-year term next year, which if served in full would make him the country’s longest serving premier. He is likely to reshuffle his cabinet next month, while looking for other ways to bring the electorate back onside.
That could mean backing away from the long-held goal of revising Japan’s pacifist constitution to focus on pocketbook issues that require less political capital. Unfortunately, the most potent economic measures, such as revitalising Japan’s overly rigid labour market, would also court controversy. So short-term fixes such as extra government spending — effectively funded by free money from the Bank of Japan - will appeal more.
That is a shame. Abenomics is emphatically still a work in progress. Unemployment is low, but growth and inflation remain anaemic, and the country’s demographic challenge is formidable. Making companies better-run and more profitable has not been plain sailing either. Progress has been marred by embarrassing blow-ups like Toshiba. And bosses are now reluctant to lift shareholder returns further, even as cash piles build up.
If Abe cannot turn things around, he may be replaced. Potential candidates include Fumio Kishiba, the foreign minister, or former defence chief Shigeru Ishiba. But it is not clear if any successor would share Abe's appetite for taking on the bureaucracy and vested interests. At worst, Japan could go back to the bad old days when the country cycled through ineffectual prime ministers who lasted a few months each. Abenomics could stall halfway through.