By Ichiro Suzuki In the October 29th general election, Japanese voters brought back the ruling coalition to govern the country continuously for another up to four years, giving them overwhelming majority. The Liberal Democratic Party (LDP), the coalition’s senior partner, alone won 261 seats, well over 233 required for the outright majority in the House of Representatives. The LDP and the coalition were expected to suffer a setback from four years ago, due to voters’ fatigue and frustration with pandemic-related restrictions that were lifted only at the end of September. Despite such frustration, as it turned out, they have spoken that the coalition be a great deal more credible than a potential alternative of the Constitutional Democratic Party (CDP) partnered with the Japan Communist Party (JCP). The CDP also lost seats. One of the focal points of the 2021 election was how much the government gives to voters. Both the ruling LDP and the opposition, primarily the CDP, are promising a greater cut of a pie, especially in the form of direct payment to households, amid income stagnation caused by the pandemic. The CDP attacked the LDP that eight years of ‘Abenomics’ brought very little to average households while enriching the already rich through higher asset prices. This is not not much different from what divides the right and the left elsewhere. The left attacks the right on rising inequality and their pro-business policies. However, such similarities end relatively quickly. The uniqueness of conservatives in Japan is that they, too, are big on spending. For decades, the choice Japanese voters have been given was a big government or an even bigger government. The LDP has been in power in all but four years since its foundation in 1955 in part because it captured voters’ hearts by giving them a lot. Prime Minister Hayato Ikeda famously declared his ‘doubling income policy’ when he rose to the helm in 1960. And he delivered it. Japan’s per capita income doubled in the first half of the 1960s. It was in the middle of the country’s super normal economic growth. As the size of the economy doubled in a short space of several years, so did income. Migration of population from rural Japan to cities provided workforce that was in great demand at factories of textiles and light electrical goods for overseas markets. The Japanese yen’s exchange rate was fixed at 360 to the dollar, and the U.S. said nothing about it to a Cold War ally in the Far East. It was a fabulous time for the economy. The LDP’s governments relentlessly redistributed fruits from high economic growth. Its policies were so successful that the party’s politicians became addicted to distributing wealth. Old habits die hard. LDP politicians rarely talk about tax cuts, let alone structural reform, almost always preferring spending. On the other side of the table, voters became heavily used to be given by the government. At a time of the economy’s downturn, owners of small and medium sized businesses customarily plea the government to do something for them. When Shinzo Abe rose to power in late 2012 for his second stint, his policy ‘Abenomics’ consisted with what he called ‘three arrows’: large fiscal stimulus packages, an aggressively loose monetary policy and deregulation. PM Abe shot the first two arrows fiercely, keeping his words. However, the third arrow, deregulation or structural reform, never really came through and turned out to be lip service. Deregulation forces pains at the outset to beneficiaries of the existing regime and hence is much more difficult to carry out than spending tax payers’ money, however great its long-tern effects on the economy might be. While LDP politicians might reluctantly support structural reform, selling it to the public is often a near impossible task due to initial pains that precede fruits. The opposition and the left-leaning media always try to shoot it down fiercely. As aging of population progresses, it is inevitable that public sector spending expands. The Tories under Boris Johnson is moving toward big state as the U.K.’s latest budget shows. Nonetheless, having heavily relied on fiscal policies to keep the economy afloat over the last 30 years, addiction to spending is moving the Japan’s fiscal health into a newly dangerous zone. Modern monetary theory has made some politicians totally oblivious to the risks associated with deficits, and some opposition politicians are fully subscribed to the MMT and talks doubt it with little hesitation. While new PM Kishida talks about both structural reform and spending, he speaks louder on the latter. The yen’s weakness since spring could be a premonition of what might follow. Maybe, a surge of the Japan Restoration Party (JRP) is a glimmer of hope. The JRP enjoyed a big boost from 11 to 40 seats, collecting the seats that left both the LDP and the CDP. They are essentially libertarians that advocates fiscal discipline and structural reform. With a strong track record of lifting the western commercial capital of Osaka from deep financial woes, the JRP dominated the region relegating the LDP to also-ran. The JRP gained seats in other regions this time. If delivered honestly, structural reform and initial pains can be sold to voters. People in Osaka are enjoying fruits from hardships ten years ago. At this juncture, however, it does not seem likely that the JRP become a mainstream national force.
About the author: Mr. Suzuki is a retired banking executive based in Tokyo, Japan.