Japan's pedal to the metal

Monetary and fiscal stimulus from Japan's new leaders will be combined with a tilt towards more assertive nationalism and military, but expect doomed free trade negotiations for Australia – although (maybe) with a yellowcake sweetener.

Incoming Japanese Prime Minister Shinzo Abe has made reviving the economy his top priority.

Abe and his new cabinet will be formally appointed as prime minister in a special parliamentary session on December 26, with the Diet (as Japan's bicameral parliament is called) reconvening in late January, to begin Abe’s promised new policy agenda. The first details of Abe's economic policy will be seen in the submission of the full year 2013 budget from February.

As the economy has slumped back into recession, the LDP will again attempt its traditional stimulus policies of increased spending on construction and capital works. Infrastructure does need upgrading in many areas, particularly in the disaster-hit Tohoku region, but critics are already worried this will repeat the pork-barrelling and higher indebtedness of previous LDP governments.

Abe’s other main promised policy tool will be ‘unlimited’ quantitative easing, instructing the Bank of Japan to keep printing the yen until an annual 2 per cent inflation target is achieved, and the yen lowered, to improve exports. A new Bank of Japan governor is due to be appointed in April, to facilitate this ambitious policy.

This comes as the final results for Japan’s lower House of Representatives election last Sunday deliver the country from the parliamentary deadlock that has constrained Japanese politics in recent times, as this supermajority allows the LDP-NKP coalition to override any potential veto by the upper House of Councillors, if it rejects legislation from the lower house.

In a large-scale victory for the Liberal Democratic Party, led by Abe, and its coalition partner, the New Komeito Party, the LDP has gone from 118 to 294 seats, the NKP from 21 to 31, delivering a greater than two-thirds majority of 325 in the 480-seat chamber.

The stock market lifted following the election, and if Abe can restore long-term growth this has good prospects for Australian resource exports to Japan, which remains Australia’s second largest export market. Controversially, this could involve resumption of uranium exports, as the LDP has promised to eventually restart more nuclear power plants, despite widespread public opposition.

More uncertain will be Japan’s wider trade policy under the LDP.

Abe has pledged that Japan will be involved in negotiations for the proposed Trans-Pacific Partnership regional free trade zone, but only if it does not harm its ‘national interests’.

This indicates that resistance from farmers and agriculture industries, one of the core constituencies for the LDP, is likely to prevent Japan from joining the TPP. For this reason, long-running negotiations for a Free Trade Agreement between Australia and Japan are similarly unlikely to proceed successfully.

Abe has also stated aims to improve relations with China, and restart negotiations for a three-way trade agreement, along with South Korea. However, his other declared policy stance of remaining steadfastly determined to defend the Senkaku Islands (claimed as the Diaoyus by China) has already angered Beijing. Abe has already announced his first post-election overseas trip will be to the US, to restrengthen the US alliance, and potentially deter both China and North Korea.

As part of this more assertive foreign policy, the LDP has pledged to increase defence spending beyond Japan’s traditionally self-imposed limit of 1 per cent of GDP, and Abe also plans to rename the Self Defence Forces to the more nationalistic ‘National Defence Force’. His ultimate goal is to alter Article 9 of the Constitution, to allow a revamped Japanese military to be used in ‘collective self-defence’ with its US ally. Changing the Constitution requires a two-thirds majority in both houses of the Diet, with further approval required from the electorate by referendum. No party currently holds a majority in the Upper House, so Abe is unlikely to attempt any changes pending the next Upper House election due in July 2013. The LDP would be supported on this issue by the ultranationalist Japan Restoration Party, which improved its representation from 11 to 54, just behind the DPJ.

It will be interesting to see if Abe resurrects his idea when he was last prime minister in 2006-07, of a ‘Quadrilateral Initiative’, between Japan, the US, Australia and India, to potentially contain a rising China. The LDP Government will certainly be keen to develop ever closer security and defence cooperation between Japan and Australia.

However, the continuing deterioration of relations between Japan and China, with the potential for both economic disruption and potential military confrontation will remain a serious diplomatic concern and dilemma for Australia and the region.

But Abe won't have it all his way. The massive win is hardly an enthusiastic endorsement for the LDP though; rather the election was a result of the disappointment with the Democratic Party of Japan, and the failure of the divided party to achieve its ambitious platform of economic and social reforms it promised during the 2009 election. The DPJ has collapsed from 230 to 57 seats, with outgoing prime minister Yoshiko Noda resigning as party leader. The extent of the lack of enthusiasm by the electorate for the new government is reflected in the record low voter turnout of 59 per cent, 10 per cent lower than in 2009.

Craig Mark is associated professor of International Studies at Kwansei Gakuin University.

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