The successor to Japanese Prime Minister Shinzo Abe, who is resigning because of poor health, faces a daunting list of economic, diplomatic and security issues. Abe’s Liberal Democratic Party (LDP) will choose its next party president on September 14. The winner will serve out Abe’s term as party leader until September 2021 and is all but assured the premiership by virtue of the LDP’s majority in parliament.
Abe’s signature “Abenomics” growth strategy was facing headwinds because of an export slump and a sales tax increase even before the coronavirus outbreak, highlighting the problem of lifting the economy out of decades of stagnation.
Critics said Abe’s “third arrow” of structural reforms – the first two were hyper-easy monetary policy and government spending – was not bold enough in the face of a fast-ageing population and a rigid labour market.
Japan has not seen an explosive coronavirus outbreak but cases have been rising and the government must balance containing it and restarting the economy. The pandemic brought Japan’s biggest economic slump on record and a third quarter of declines knocked real gross domestic product growth to decade-low levels, wiping out the benefits of “Abenomics”.
Policymakers are short of ammunition with a big public debt limiting new government spending and the Bank of Japan running out of options to hit its elusive 2 per cent inflation target. Japan is also struggling with a rock-bottom birthrate, shrinking labour force and low global ranking on women’s empowerment.
Japan’s ties with China had improved ahead of a planned visit by President Xi Jinping, but the trip was postponed because of the coronavirus. Some LDP members want the visit cancelled over China’s clampdown on Hong Kong and its push to assert claims in the East China Sea.
China is locked in a confrontation with the United States over rights, trade and security, and Washington may press Tokyo to take sides. But while Japan shares US concerns about China, the Asian neighbours’ economies are deeply intertwined so the next leader must balance security and economic priorities. Abe had forged close ties with President Donald Trump so the next leader will be starting afresh no matter who wins the US election.
Pressure on Japan from its main security ally to take on a greater share of the burden of its defence and pay more to host US troops is unlikely to ease. Japan’s ties with US ally South Korea are frigid due to disputes over Koreans forced to work for wartime Japanese firms and the feud has spilled over into security and trade. — Reuters