In Japan, economic lemons are raining down on Prime Minister Shinzo Abe, who in turn appears determined to make lemonade with a slew of new decisions. This decisiveness is part of what has kept Abe’s approval ratings so high over the last two years. While he appeared to sail easily through the first 15 months of his premiership, harsh economic reversals and controversial policies concerning nuclear energy and Japan’s constitutional stance on collective self-defense have been bruising. Nevertheless, Japan’s return to recession on Monday has seen the prime minister come out fighting, with both policies and shrewd political maneuvering designed to keep himself and his ruling party on track and in power.
The third quarter economic data on Monday was shocking to most observers, as the 2.2 percent annualized growth predicted by Bloomberg turned out to be a GDP contraction of 1.6 percent. In response Abe did what he had hinted at, and what most observers had expected for over a week. On Tuesday he announced plans to both delay the second phase of the consumption tax increase in October 2015 to 10 percent, and call for an immediate lower house election, which will be on December 14 according to lawmakers.
Neither decision was unexpected, given that Abe had floated the possibility to the press prior to leaving for the APEC Leaders’ Summit on November 9. Whether the prime minister had prior knowledge of the disappointing growth figures ahead of time is impossible to know, but he could not have reasonably expected them to be good enough to convince a public already opposed to go through with the tax hike. In anticipation, he loaded both policy and election plans to keep his administration out in front of a recession story that might have capsized a lesser politician.
The three parts of his plan simply but effectively reinforce each other, addressing the population’s most immediate fears while leaving his political opponents (both inside and outside the ruling LDP) very little time and space to maneuver against him. The first and most obvious decision was to delay the tax increase, recognizing that voters, businesses, and (increasingly) officials within his own government had become increasingly opposed to the scheduled second hike since the dismal second quarter GDP figures. Even on this point Abe has tempered his action, saying on Tuesday that there will be no more delays to the tax beyond April 2017. His Finance Minister Taro Aso went even further, saying the administration should remove the provision which allowed the government to postpone the increase due to severe economic conditions.
In calling for the upcoming poll, Abe adroitly linked it to his decision to postpone the unpopular tax increase, saying “I ought to seek the people’s mandate over my decision by holding an election… Whether my economic policies are right or wrong [on the nation’s economy], or there is any other option, I’d like to hear the people’s opinions via the coming election.” However, such a short timeline between now and December 14 gives the already small and divided opposition very little time to organize an effective campaign. Abe told the press he would “step down” if his coalition with Komeito failed to retain its majority, an eventuality that is highly unlikely. With his popularity still hovering around 50 percent, the coalition holds 326 out of 480 seats in the House of Representatives.
Not only does this all but ensure that Abe and the LDP will hold onto the Diet, it also places the prime minister squarely at the top of his own party prior to a leadership shuffle in the LDP next September. A victory next month will give him a new mandate to continue his agenda through the 2015 ordinary Diet session while also stifling any nascent dissent within his own party.
The final piece of the plan is a 2 trillion yen ($17 billion) additional stimulus package the government is considering for fiscal 2014. The money would target the usual themes of regional revitalization and job creation, mitigating the rise in energy costs due to the weakening yen, and providing tax breaks to middle-class consumers and small and medium enterprises adversely affected by April’s sales tax increase. While these are old strategies that have not proven to have a lasting beneficial impact on the economy, the stimulus does usually provide a short-term growth spurt politicians can bank on to shore up support.
Nothing is certain in politics, but Abe would appear to have a lock on the December election. What happens during the next Diet session will be more important, as his policies on collective self-defense and nuclear energy will come back into focus, with a mandate that will be tough to challenge given the opposition’s current fractured state.