Japan would take a turn for the worse without its chief reformer. Scandals have badly hurt Shinzo Abe; public support for the prime minister since 2012 has fallen to a record low. It looks increasingly likely that he could be forced out of his position. That would weaken an ambitious overhaul of the world’s third largest economy.
Abe denies he intervened to secure preferential treatment for a friend’s plan to set up a veterinary school. He has also denied that he intervened in the heavily discounted sale of state land to another school operator, which had ties to Abe’s wife, Akie Abe.
The leader has been trying to increase money supply, boost government spending to stimulate growth and encourage private investment in a programme, dubbed “Abenomics”. It is a work in progress.
Japan is enjoying its longest run of growth since the 1980s and unemployment is at a 25-year low. Thanks to tighter corporate governance, the Nikkei 225 is up 110 per cent on Abe’s watch. Still, steady growth is not fattening paychecks as hoped. Household spending fell 0.9 percent year on year in February, while inflation-adjusted real wages fell for a third straight month.
Bolder steps to make it easier to hire, fire and pay workers according to merit and cut bureaucracy are needed to give Japan Inc greater confidence to boost wages. Abe’s departure would make such upgrades less likely.
One poll from Asahi newspaper, show voters favor Shigeru Ishiba, a former defence minister and security hawk, to replace Abe. His top interest appears to lie in raising Japan’s capabilities to take on North Korea. And his thoughts on economics are a muddle, but hue toward protecting local communities from the forces of globalisation that Abe has tried to harness.
Key elements of Abenomics would remain. With inflation only halfway to Tokyo’s 2 per cent target, the Bank of Japan’s historic monetary-easing campaign will persist. Yet a post-Abe era may reduce the BOJ’s resolve to keep its foot on the accelerator.
It is already a vulnerable time for Japan. According to a Reuters poll, annualised economic growth slowed to 0.5 per cent in the first quarter, down from 1.6 per cent in the fourth. If scandal ousts the single man around which the economic overhaul is fashioned, the yen could surge, imperiling exports, and stocks could stumble. Markets are too sanguine about the potential turmoil.