Monday, March 25, 2019

JAPAN ENDS AN ERA - WHAT COMES NEXT?

Ichiro Suzuki
TOKYO REPORT

By Dan Sneider, Stanford University, APP member

Reprinted from The Nelson Report, March 22, 2019

On April 30, the Heisei Era will come to an end in Japan, after 30 years of the reign of Emperor Akihito. I was fortunate as a reporter to be here when the Showa Era came to an end with the passing of Emperor Hirohito in January of 1989. It was a dramatic moment, marking the end of a turbulent passage of Japan from democracy, to militarism and war, followed by defeat, occupation and rebirth. 

The Heisei Era, despite the now constant stream of reflections on Japanese television, does not carry that sense of drama. Of course, it was momentous in its way - the collapse of the bubble economy and the end of LDP dominance, but, as the name suggested (sometimes translated as "achieving peace"), it also embodied the stability and constancy of Japanese life, marked by the return to moderate growth and conservative rule.

What comes next? The first thing will be the naming of the new era, to be announced on April 1 by the Chief Cabinet Secretary. These moments are rare in Japanese life and always seem to carry a lot of weight in defining where the nation is headed. The Imperial era name is seen as defining an entire generation, or sometimes more. Crown Prince Naruhito will take the throne on May 1, after his father abdicates on April 30.

For now, the news in Japan is dominated by two very different events - the beginning of the cherry blossom season, always marking a passage, and the retirement of Ichiro Suzuki, who used the official start of the Major League Baseball season - a two-game series here this week between the Mariners and the A's - to finally announce the end of his professional baseball career, at the grand old age of 45. Ichiro is story number one around here - NHK showed every single one of his 3,089 MLB hits yesterday and I watched enough to remind myself, as a life-long fan of the game, that he was the best pure hitter I have ever seen.

But when it comes to shaping the events ahead in Japan, the more significant news came in the form of the government's admission this week in its monthly report on the economy, after three years of upbeat assessments, that things were heading downward. The Cabinet Office still claims the economy is experiencing "gradual recovery," but it admitted the economy was weakening and will do so for the foreseeable future. Consumer spending and capital expenditure remain positive but there are already signs of significant cutbacks in corporate investment plans, particularly in the manufacturing sector.

The cause of this slowdown is a slump in exports which has been statistically evident for several months. The big-ticket Japanese exports, which remain the driver of this economy, are all being hit - cars, steel, and semiconductor production equipment. This is mainly driven by the slowdown in China, compounded by the rise in U.S.-China trade frictions, which directly affects Japanese exports that feed China's own exports. Uncertainties over Brexit also impact Japan's export sector and investment plans.

THE CHINA FACTOR
Still Japanese firms continue to invest heavily in China, reports my Canon Institute colleague Kiyoshi Seguchi, one of the foremost experts in Japan on the Chinese economy. This is especially true for the Japanese automakers who see a continued value in the domestic car market in China and are increasing their presence in China. His somewhat contrarian look at the Chinese economy and investment plans there is worth reading.

Seguchi and other analysts believe the downturn in Chinese exports will begin to slowly turn around as domestic demand resumes in China. He says the sharp drop in Chinese exports started last October but has bottomed out and that the Chinese economy is now situated to absorb the current level of U.S. tariffs. Japanese analysts are anticipating as well that the U.S. economy will start to slow down later this year. The Chinese market then may be even more crucial to Japan in the latter half of this year.

This underscores why while Japanese share the view of China as a strategic and economic threat but are not happy with the Trump tariff wars against China. A U.S-China trade deal would be welcomed here, and could have significant positive impact on the Japanese economy.

Japanese business and the government also worry about the potential negative impact of U.S. pressure for a quick trade deal with Japan. The imposition of auto tariffs, as part of that negotiating process, would be a shock to the Japanese economy.

POLITICS AND FOREIGN POLICY IN JAPAN
This economic news forms the backdrop of the complex political calendar of the next months, and those domestic political calculations shape in turn, as they do in many countries, some important foreign policy decisions. Prime Minister Abe is now engaging in a very delicate balancing game between the U.S. and China, though primacy always goes to the former.

We are now heading into an election season in Japan. On April 7th there will be the first round (second round on April 21) of unified local elections, held every four years in Japan. Prefectural governors, big city mayors, and prefectural assembly elections, then the vote for smaller cities, towns and villages, as well as by-elections for two Diet seats. While local issues can drive these votes, it is always seen as an indicator of voter mood more broadly. It sets the stage for the Upper House election in late July - or, as is constantly rumored in the Japanese press, a decision to dissolve the lower house as well and make it a double election.

There is no danger that the LDP and its coalition with Komeito will lose power. The splintered opposition is way too weak to imagine that happening. But a significant shift downward in the LDP vote in the local elections could signal a potential loss of seats in the upper house, all of which will unleash the barely contained desire of rivals to Prime Minister Shinzo Abe within the LDP to have him finally give up the reins of power.

Almost anticipating such challenges, senior party leaders are openly calling for a change in party rules to allow Abe an unprecedented fourth term as party president, and therefore as Premier. This would extend his rule beyond the current end date of September 2021. Abe denied any intention along those lines, causing laughter among veteran Japanese political reporters.

For Abe, the economic slowdown is a serious threat to his authority. His popularity rests almost entirely on his record of reviving economic growth, not on his nationalist yearnings for constitutional revision or even on his management of relations with the U.S. and Donald Trump, though he gets credit for that among voters. The latest economic news is feeding increased speculation that Abe will again postpone the scheduled increase in Japan's value added tax, from 8 to 10 percent, which is take place on October 1. As he did before, Abe may use that as an excuse to call a double election, especially if there is no rebound in economic indicators.

These economic and political factors are shaping Abe's diplomatic agenda as well. He hoped to pull off a long-sought settlement of the territorial dispute with Russia as a signature triumph ahead of the upper house vote. But although negotiations are still ongoing, the prospects of a deal are fading due to Moscow's less than accommodating position.

Improvement relations with China is also high on the agenda, with a Xi Jinping visit this year anticipated. But that visit has to take place within the framework of the Imperial succession and the hosting of the G20 meeting June 28-29. Both events are intended to showcase Abe's diplomatic prowess. But the Abe administration does not want either of those events to be painted in Chinese colors.

In the end, relations with Washington still trumps (excuse the bad pun) everything else. So, the Abe administration has pushed for Donald Trump to come in late May on an official visit - which usually is paired with an audience with the Emperor - so that he will be the first foreigner to meet Emperor Naruhito. They have also indicated that if Xi comes for the G20, it will not be accompanied by a state visit, claiming there are already too many demands on their ability to provide security. An unusual second visit by Xi in the fall is being discussed and if it happens, it would signal the Chinese need to sustain high levels of Japanese investment in their economy, some analysts believe.

Meanwhile, seemingly out of nowhere, the Japanese government leaked plans this week for Abe to head to the U.S. in April - later in the month supposedly (April 23-29)* - possibly a redux trip for golf and dinner at Mar-a-Lago. The nominal purpose of this is to talk about North Korea but the Japanese are not worried that much anymore about Trump wandering off the reservation with Pyongyang. The real reason is to head off a trade crisis and auto tariffs and to smooth the path for the glorious audience with the Emperor, a moment sure to flatter The Donald, followed by a trouble-free G20 gathering.

By then, the cherry blossoms will be gone, a new era named, and baseball season will be in full swing on both sides of the Pacific.

*Trump is expected to visit Japan May 26-28 as a state guest and June 28-29 to attend a G-20 summit in Osaka. If Abe's April trip is realized, the two leaders would meet face to face three months in a row.

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