Stratton Street’s Andy Seaman sees continued challenges to Abe

Japanese prime minister Shinzo Abe’s win in upper house elections do not mean his policies are universally popular, warns Andy Seaman, partner at Stratton Street Capital.

It is quite possible that the elections over the weekend may mark the peak popularity of Japan’s prime minister Shinzo Abe. He won control (with his coalition partners) of the upper house, although perhaps not by enough to get the two thirds majority needed to change the constitution, although Abe seems keen to pursue this.

Although he won the majority, giving him a majority in both houses, turnout was low. The optimistic side of this is that the support does mean that there us a consensus that change will have to happen in Japan – true but many of the moves are still unpopular.

Primarily, labour market reform is difficult area. Workers with lifelong employment contracts are getting wage cuts, as firms are reluctant to break the contracts, which is having a downward effect on demand. The younger generations are having difficulty getting jobs at all, and society is not entrepreneurial, and people are ending up in temporary low paid jobs. Structural reform here is crucial, but very difficult, and much more important than changes in the money supply in the longer run. Inflation is not an end in itself, and although the country is a large net creditor, resolving the government’s debt position also involves difficult choices that are likely to be delayed.

For Abe to get a mandate for change is quite remarkable, given how he lost power once before; we will see if he can deliver real substantive change over the next few months.

Either way, if Shinzo Abe makes changes he will be unpopular with some, and if he does not he will be as well.

 

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