‘The revival of the Japanese economy will lead to development of the global economy’
Posted by Ram Kumar Shrestha on September 5, 2013
In an exclusive interview with Global ahead of the G20 summit in St Petersburg, Japanese Prime Minister Shinzo Abe describes how his Abenomics policy could not only kickstart Japan, but help reboot the world economy
Abe pictured with US Ambassador to Japan John V. Roos. Japan is keen to maintain a close relationship with the USA
Prime Minister, you have enjoyed a spectacular comeback in Japanese politics. Since you took office after the December election, the philosophy of ‘Abenomics’ has totally swept away any disappointment that arose during your first term as premier in 2006-07. A rapid series of political and economic manoeuvres aimed at lifting Japan out of its economic torpor has won you popularity at home and plaudits from abroad. You have launched dramatic initiatives towards Africa and attempted to repair long-neglected fences with ASEAN neighbours.
Now, in the lead-up to the G20 summit in St Petersburg, there is revived interest in Japan’s role as the world’s number three economy, as well as in the global lessons to be learned from Abenomics and its associated policies. It is a remarkable success in a very short time. But it raises many questions about where a reinvigorated, resurgent Japan might be heading.
Global: Abenomics is the new buzzword in international politics. You are seen as having kick-started not just the Japanese economy, but also world financial markets which, despite major wobbles, remain historically high. Can you explain the famous three ‘arrows’ of your overall policy? What are the political, economic and diplomatic drivers behind Abenomics? And what should we expect them to deliver?
Prime Minister Shinzo Abe: Thank you very much. I am flattered by your remarks. To start with, I didn’t coin the term ‘Abenomics’, market participants did. The most pressing task for me has been to blow away in a single great breath the pessimism associated with the Japanese economy. The narrative was always like this: Japan is unable to change, deflation is firmly entrenched, and our ‘revolving door’ politics are only exacerbating our economic sluggishness.
Incremental piecemeal, muddling-through sorts of remedial measures no longer amount to anything meaningful. Decisive policies in a different dimension than what has come before were needed to drastically alter the narrative and the economic landscape. At the end of the day, what matters to the financial markets is perception as much as reality. But you need to have a sizable amount of political capital to precipitate major moves in the market.
I had anticipated that the Bank of Japan (BOJ) would be cautious. But I asserted that what the BOJ would do as our central bank was no different from what initially the Reserve Bank of New Zealand, followed by the Bank of England and other central banks, had done in co-ordination with their respective governments, namely to draw up a statement between the democratically-elected government and the monetary authority with a view to achieving policy goals. Previously the BOJ had no specific inflation target. Now it does. The Bank has committed to a joint statement issued together with the government, which clearly states that both sides will work to achieve a price stability target of two per cent.
That is my ‘first arrow’ – specifically, bold monetary policy at a degree never seen before. It worked. If you think about it, which is better for global prosperity, a Japan mired in deflation moving in reverse, or a Japan that stimulates demand? The answer is self-evidently the latter. That is the motivation for my first arrow, and the BOJ is really working hard to achieve this now. Japan growing at an annual rate of 4.1 per cent for a year would be equivalent to an economy the size of Israel emerging.
I should add that in Japan, legend has it that over 500 years ago, the samurai heading the clan that used to rule my home prefecture taught his three sons that while one arrow is easily bent, three arrows together are unbendable. The policy implication contained in this is that you should never tackle anything in bits and pieces.
So at the same time, I launched my second arrow, which was to get enacted as a supplementary budget one of the largest emergency budgets ever in Japan. What you have seen are the results generated by firing these two arrows. At long last, Japan has once again come to hold a position of importance.
However, in parallel with these two arrows, my third arrow, a Growth Strategy harnessing private investment, is also essential if we are to enjoy sustained growth.
The key elements of the Growth Strategy are ‘challenges’ – actively taking on challenges – ‘openness’ – openness to the world – and ‘innovation’. Within this, I set ‘active participation by women’ as one of the Growth Strategy’s pillars. In Japan, the capacity of women still lies untapped. I am going to dismantle our glass ceilings, while also preparing the infrastructure to make that possible, such as by eliminating waiting lists for childcare for small children over the next five years. In this way, the power women possess can be utilised to the full.
I myself intend to serve as the drill bit that will break through the solid bedrock of Japan’s regulatory regime. We will, in principle, liberalise the electricity market, which has been protected through regional monopolies for 40 years, and split off the generation and transmission of electric power. In doing so, I expect to see businesses utilising inventive new renewable energies and demand control technologies entering the market one after another. Furthermore, this autumn, I intend to take a decision on drastically lowering taxes on capital expenditures in order to ease the burden on companies when making investment decisions.
I have launched negotiations with important trading partners on economic partnerships, including the Japan-EU Economic Partnership Agreement, the Trans-Pacific Partnership Agreement, a Free Trade Agreement among Japan, China and the Republic of Korea, and the Regional Comprehensive Economic Partnership. Entering into these kinds of agreements may well result in a degree of pain domestically. But for us, there is really no other path to growth other than opening up the country and incorporating the growth of the world into Japan.
I hope that people from around the world visit and invest in this revitalised Japan. In this way, I am determined to breathe new life into a robust Japanese economy and restore a strong Japan that cancontribute to the world not only economically but also politically and diplomatically.
Is there an element of gamble here: a huge, audacious economic experiment? What about the inherent risks of your policies, such as concentration of wealth, managing an ageing population, and concerns over Japan’s national debt – and how do you address them?
The short answer is, without taking risks, you cannot achieve anything. As I stated in my speech at the Guildhall, I would like to underline that, in the words of the late Baroness Margaret Thatcher, this is a case of TINA – “There is no alternative.”
Japan has suffered from long-standing deflation, with gross national income of nearly 50 trillion yen (approx US$500 billion) evaporating away over the five years beginning in 2007. As Japan’s tax revenue continues to shrink, it is little wonder that people think it will become impossible for Japan to maintain public finances without issuing additional government bonds in large quantities. With our unavoidably and rapidly decreasing birthrate and ageing population, how will Japan be able to maintain adequate vitality?
To tackle these issues, you first have to expand tax revenues. And to do that, you first need to pursue growth, which is what I am doing now.
Gradual increases in our consumption tax rate have already been set into law. This will maintain confidence towards Japan while also securing the funds for our growing social security expenditures.
I will make a careful decision on the actual consumption tax increase based upon Article 18 of the 2012 law, which stipulates consideration of the economic situation. But I would like to point out that even after the tax rate is raised, Japan’s consumption tax rate will continue to be lower than the UK’s VAT.
What matters the most is our Growth Strategy. Japan can achieve growth, despite our ageing population, if we open up our markets and liberate thoroughly the power that women possess.
Pessimists might claim that the current situation cannot be helped. But my mission and my fate are not to succumb to the pessimists or merely criticise what others do. Instead, I became Prime Minister in order to restore a strong Japan and implement policies that will build up the nation still further.
Of course no policy is free from risk, but my economic policy is not some sort of gamble. I will go forward without wavering, implementing policies while standing firm in the belief that Japan can achieve growth through my ‘three arrows’.
International fears that your policies effectively devalued the Yen and were thus protectionist, eased as world markets took off. So what now will be your message to the G20 summit? What lessons for global recovery can we learn from Japan’s experience?
The three arrows of my economic policy are aimed solely at extricating Japan from deflation and reviving the economy. Nowhere do they target foreign exchange. Regarding this point, I explained my three arrows, and the Growth Strategy in particular, at the G8 summit held recently. The other G8 leaders responded to my explanation with both strong expectations and high appreciation, as the revival of the Japanese economy will lead to development of the global economy.
There are two points in my message to the G20 summit to be held in St Petersburg. The first is that by pushing forward tirelessly for reform in order to revive the Japanese economy, I intend Japan to contribute to the growth of the world economy. I believe that such efforts by Japan, through which we aim to achieve a virtuous cycle of economic revival and sound public finance, can become lessons that others can learn from as the global economy works towards revival.
The second point is that the G20 summit serves as a valuable opportunity for leaders of both northern and southern countries to meet directly and discuss matters face to face. Multilateral negotiations on trade and development sometimes have a tendency to end in deadlock, due to opposing viewpoints between the north and the south. I would like to hold candid discussions with the other G20 leaders and express my strong political will towards reinvigorating those efforts.
Allied to the principles of Abenomics are major foreign policy objectives. Are you strategically rebranding and repositioning Japan in South-east Asia and the world? If so, how?
My return to the office of Prime Minister came about in response to the expectations of the public, who want me to restore Japan’s robust economy. A strong economy is really the source of Japan’s power as a nation. I believe that Japan can contribute to the stability and prosperity of the world only when a strong Japan is revived again.
My philosophy in diplomacy is to engage in a strategic diplomacy underpinned by the fundamental values of freedom, democracy, human rights and the rule of law while viewing the world broadly, much like taking in a panoramic perspective of a world map.
In light of this, first of all Japan will reinforce the Japan-US alliance, which is the cornerstone of Japanese diplomacy. I have already reconfirmed with President Obama the strong bonds that unite our two countries. Japan will also contribute to the peace and prosperity of the Asia-Pacific region by developing our cooperative relations with neighbouring countries, including the members of ASEAN. We will also act in close co-operation with the countries in Europe, with which we share fundamental values, as partners that together play a leading role in fostering peace and prosperity in the international community.
Moreover, we will strengthen our relations with Africa, a frontier of hope that has been achieving a high rate of economic growth. It is incumbent upon Japan as a responsible nation in the international community to work together with Africa in resolving the various challenges the continent faces. The Fifth Tokyo International Conference on African Development (TICAD V) held in Yokohama in June succeeded in achieving a great outcome.
Is that policy prioritised by the desire to rebalance relations with China? Is your ambition to reclaim the number two spot as a world economic power?
Japan’s relations with China are among our most important bilateral relations. The relationship between Japan and China is tied inextricably in various areas, and both countries bear responsibility for the stability and development of both Asia and the world as a whole.
That said, there are times when various issues arise between neighbours, Japan and China. However, I believe that, even when individual issues arise, it is essential that the doors of dialogue between Japan and China remain open at all times, and I have been calling on the Chinese side to engage in dialogue.
Japan is going to shoulder a great responsibility in upholding and fostering a peaceful, stable world order based on the rule of law. I am determined to restore a strong Japan by ensuring that the economic policies I am now ardently pursuing yield success. In doing so, I will create a Japan that makes substantial contributions to global peace and prosperity economically, politically and diplomatically.
Relations with China have worsened, fanned by the dispute over the sovereignty of the Senkaku Islands. What ways forward do you see to ease tensions? And does the US, or any other power, have a role in this?
The Senkaku Islands are, without a doubt, the inherent territory of Japan, in light of historical facts and based upon international law. Indeed, the Senkaku Islands are under the valid control of Japan. Thus, there exists no issue of territorial sovereignty to be resolved concerning the Senkaku Islands.
The Japanese government formally incorporated the Senkaku Islands into the territory of Japan in 1895, in accordance with the established principles under international law. China did not express any objections either at that time or for the 76 years that followed. It was only in 1971 that China began to make its own assertions about the Senkaku Islands. This was only after the United Nations had indicated the possibility of deposits of petroleum resources in the waters surrounding the Senkaku Islands.
When I took office as Prime Minister six years ago, I visited China immediately after assuming the post and restored Japan China relations, which at the time had become strained. At that time, I proposed that even if individual issues arose in Japan-China relations, it would be essential for us to control them so that they do not affect our overall relationship. I proposed this idea as a “mutually beneficial relationship based on common strategic interests”, and reached agreement with the Chinese side on this approach.
Now, I am calling on the Chinese side to return to the origin of this “mutually beneficial relationship based on common strategic interests”. It is wrong to close all doors for dialogue just because some issue has arisen. On the contrary, precisely because some issues exist, it is important for us to meet face to face, including at the leaders’ level, and discuss various matters directly. Taking this perspective, I have been calling on the Chinese side to engage in dialogue. My door for dialogue is always open.
In the half year since I became Prime Minister again, I have visited a number of countries, including the United States, Asian countries such as ASEAN members, Russia and countries in the Middle East as well as in Europe. What’s more, at TICAD V, an international conference on African development, I held bilateral summit meetings with a large number of African heads of state and government. All of them expressed their appreciation of the approach that Japan has taken in this regard.
The improvement in relations with your ASEAN neighbours through determined economic initiatives and diplomatic partnerships – such as with Myanmar, the Philippines and Vietnam – is seen as an attempt to act as a counterweight to China’s dominance in the region. The huge infusion of aid to Africa is perceived as doing the same on the continent where China has secured a massive foothold over more than 20 years. Is this a return to the head-tohead Pacific rivalry of two decades ago? What are your aims for these parallel policies?
Japan’s efforts to improve our relationship with our ASEAN neighbours and our assistance to African nations are not intended to keep any particular country in check.
Over a great many years, Japan has been building up friendly and co-operative relations with the members of ASEAN across an entire spectrum of areas, encompassing political, economic, and cultural fields as well as people-to-people exchanges. Also, Japan has been proactively providing assistance toward the establishment of an ASEAN Community through its co-operation aimed at strengthening intra-ASEAN connectivity, redressing intra-ASEAN disparities, and enhancing disaster management and other areas.
In particular, this year marks the 40th Year of ASEAN-Japan Friendship and Co-operation. I chose three ASEAN members – Vietnam, Thailand, and Indonesia – to be the first countries I visited overseas in January 2013, immediately after I took office. I also visited Myanmar in May. Furthermore, in December this year, Japan will host the ASEAN-Japan Commemorative Summit. On that occasion, I plan to discuss with my colleagues in ASEAN a mid- and long-term vision to further bolster our relations. I hope that this will serve as momentum for strengthening and expanding Japan-ASEAN relations further.
In Africa in recent years, the market has been growing rapidly against a backdrop of high economic growth, and Japanese companies have been paying close attention to opportunities in Africa. For Japan, Africa is our business partner with whom we can now grow together and also foster world growth together.
At the TICAD V conference, held in June, we reached the conclusion that, in order to enhance the quality of Africa’s growth, the private sector should serve as a driving force for growth. We also agreed that it will be essential for us to improve infrastructure and foster human resources. The assistance package – comprising up to approximately 3.2 trillion yen, including approximately 1.4 trillion yen in official development assistance – that I announced during the conference, would promote such efforts through the public and private sectors working together, and then expand private investment directed at the African continent. My government will continue to strengthen co-operation that harnesses the power of the private sector.
Where do you see the rebranded Japan in ten years’ time: economically, and diplomatically as a world player?
I am fully confident that in ten years’ time, Japan will have recovered its robust economy and will continue to be a major player that contributes to the peace and prosperity of the world.
Japan has made great contributions to the world in addressing various challenges by utilising its cutting-edge technologies that Japan is proud of. Ten years into the future, I expect Japan to contribute to the international community as a pioneer in resolving the challenge of our dwindling birthrate and ageing population and other 21st-century-types of challenges.
The world will continue to count on Japan a great deal in meeting many global challenges, such as upholding and fostering a free and open maritime order, the fight against terrorism, human rights, and climate change. In working to resolve the mountainous number of international issues, I intend to redouble my efforts to make Japan an even more reliable partner for both the region and the world.
Where do you see the restyled Japan constitutionally in ten years’ time, given your ambition to rewrite Clause 9 of the constitution pledging the nation to pacifism? What military change is envisaged? Will this resurgent Japan be emblematic of – or lead to – what some critics might see as dangerous nationalism? What do you say to those – especially among ASEAN neighbours – who fear that a powerful revisionist movement in Japan wishes to blur its historical record in World War II?
Japan’s current constitution has never been amended even once since its enactment up to the present day, a span of more than 60 years.
Thus, the Liberal Democratic Party (LDP), the ruling party, announced its draft revisions to the constitution, aiming for a constitution which is appropriate for Japan in the 21st century. What I would like to emphasise first of all is that there is no change whatsoever in Japan’s commitment to pacifism or the renunciation of war from the current constitution. The draft preamble states clearly that under the principle of pacifism, Japan will promote friendly relations with other nations and contribute to the peace and prosperity of the world.
On that basis, with regard to national security, the draft constitution expressly provides for Japan’s right of self-defence and renames the Self-Defence Forces as the National Defence Forces, neither of which is stipulated in the current constitution. This only makes Japan the same as other countries around the world. It merely stipulates what is only natural, that the nation will defend its people and its territory, which are the foundations for the existence of a sovereign state.
In co-operation with the international community, I will continue to be committed to pacifism. I will defend my nation and my homeland with mettle and a sense of pride. I will aim for a country where basic human rights are upheld, harmony is respected and people help each other in their families and in the society as a whole.
It is completely wrong to say that Japan is heading for a dangerous nationalism. Ever since the end of World War II, Japan has consistently made great contributions to peace and prosperity in Asia and around the globe by providing overseas development aid and participating in peacekeeping operations, among other things (see Out of Africa, page 9). This is the fundamental national policy espoused by the Japanese people and it will remain unchanged into the future. The path that Japan has followed as a peaceful nation is well-regarded all around the world, and we will continue to follow the path of a peaceful nation. This is something we are proud of, and it is well recognised by the people of ASEAN countries and many nations beyond.
Our neighbouring countries and ASEAN countries are essential partners for Japan. As a responsible democracy in the Asia-Pacific region, Japan will make still greater efforts to strengthen its relationship with these countries while making contributions to the peace and prosperity of this region and the world.
Finally, after 20 years of stagflation, Abenomics has brought new hope to Japan. But every stock market wobble damages the nation’s still-fragile self-confidence. You have described this as Japan’s last chance. How much of a personal burden is it for you, having lit the flame of hope and confidence, to keep it alive and burning brightly?
I am fully aware that Japan is facing various challenges. Our economic policy is now also heading towards a moment of truth. The pivotal question is whether we can execute this policy without wavering in our purpose.
Now that I have come to shoulder the heavy responsibility of taking the helm of the nation once more, I am firmly determined to restore a strong economy and transform Japan into a country that is brimming with hope and self-confidence. I am also resolved that I will make Japan a country that makes substantial contributions to the peace and prosperity of the world. I consider these to be my roles, and indeed, my mission. I will stay the course, seeing these through to the very end.
About the author: Shinzo Abe is Prime Minister of Japan