So far seems so good for the now exuberant Japanese Prime Minister Abe. The Japanese stock market is ebullient. The economy seems to be picking up. His popularity rating at over 70% is quite unprecedented. He is well set to capture the upper house of the Diet in July. If all goes well, he is likely to proceed with revising Japan's post-war Constitution to enable Japan to rearm as a "normal" nation. Recovery of Japan's lost decades and its national pride does not seem far in the horizon.
The leader in The Economist (Abe's Master Plan, 18 May, 2013) gives a guarded assessment. For serious questions remain whether Abe’s unconventional strategies are sustainable even in the medium term -
(a) An ever-weakening yen for an economy of the size of Japan is bound to put pressure on its trading partners worldwide, risking competitive devaluations if not a full-blown currency war. China is already feeling the heat along with some of Japan's Asian neighbors, such as Thailand. While America may welcome a much weaker yen for now so as to divert attention from the dollar Click here, there may come a time when American exports would begin to suffer if the yen goes through the floor. History of the 1985 Plaza Accord comes to mind, which resulted in decades of yen appreciation.
(b) Japan has built the world's highest national gross debt reaching 240% of GDP. Debt servicing already accounts for a quarter of the budget. It begs the question how far money-printing alone could serve to revive an economy with the world's highest proportion (23.3%) of the elderly (65 years and over). In any event, the growing debt mountain is becoming a tickling time-bomb, according to a recent article in Spiegel Online (Anne Seith, January 3, 2013).
(c) Abe signals liberalization of agriculture and other key sectors such as electricity by agreeing to sign for American Trans-Pacific Partnership (TPP). Yet these sectors are full of vested interests and political behemoths which have all along been the bedrock of his Liberal Democratic Party. Whether he can muster enough newly-won political capital to ram through meaningful reforms is moot. His other proposed economic measure to increase VAT is likewise not set for easy passage, if past experience of his predecessors is any guide.
(d) Perhaps most important of all are Abe's right-wing political leanings and his nationalistic history-revisionism. His grandfather was instrumental in managing a puppet regime in Manchuria during the last days of the Qing Dynasty. Abe himself doesn't admit that Japan was an aggressor in the Second World War. He connived at, if not quietly encouraged, his senior deputies' paying homage to the Yakasuni Shrine housing Japanese war-dead along with Class A War Criminals. His government has rejected the existence of forced "Comfort Women" during the war, the bulk coming from China, South Korea and other Asian countries. These and other war atrocities still remain deep scars in the national psyches of many Asian countries, especially China and South Korea. It is difficult to see how Abe's rejectionism and Japan's eventual rearmament would help exports to these huge markets.
(e) While America may welcome if not encourage Japan's eventual rearmament so as to reduce its military burden in the Asia Pacific, it is unlikely to be willing to see an exacerbation and complication of the already-tense situation in the East and South China Sea. Owing to the U.S.-Japan Mutual Defense Treaty, any untoward action by Japan is likely to drag America into a catastrophic regional if not global war.
In any event, a more buoyant Japanese economy would be welcomed by China, now Japan's largest trading partner. However, if Japan revises its Constitution to rearm, coupled with its rejectionist postures, this would stir up a tidal wave of anti-Japanese backlash, most of all in China and South Korea. What is more, this could lead to an unwelcome arms race, which would be bad news for peace and stability in an already geopolitically-tense Asia Pacific region.