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What Abe’s resurgent Japan means for ASEAN

Sunday’s elections in Japan delivered victory for the Liberal Democratic Party (LDP) coalition and a clear endorsement for Prime Minister Shinzo Abe. For the first time since 2006, one party has majorities in both Houses, to ease the passage of legislation. Mr Abe can plan on three-plus years in office — a lengthy tenure compared to his recent predecessors.

Since Mr Shinzo Abe came into office at the end of last year, Japan’s economy has grown some 4.1 per cent and the stock market has hit peaks as much as 80 per cent higher. Photo: AP

Since Mr Shinzo Abe came into office at the end of last year, Japan’s economy has grown some 4.1 per cent and the stock market has hit peaks as much as 80 per cent higher. Photo: AP

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Sunday’s elections in Japan delivered victory for the Liberal Democratic Party (LDP) coalition and a clear endorsement for Prime Minister Shinzo Abe. For the first time since 2006, one party has majorities in both Houses, to ease the passage of legislation. Mr Abe can plan on three-plus years in office — a lengthy tenure compared to his recent predecessors.

The election consolidates power and paves the way for bold changes. Will Abenomics continue? What could a resurgent Japan mean for others in Asia?

Optimism is palpable. Since Mr Abe came into office at the end of last year, the economy has grown some 4.1 per cent and the stock market has hit peaks as much as 80 per cent higher. These numbers have been driven by stimulus — with the Bank of Japan’s quantitative easing and increased government spending as the first and second “arrows” of Abenomics.

Now, however, comes the third and hardest part: Structural reform and increasing productivity. Priorities outlined include bringing women into the workforce, education reform, emphasising innovation and cutting red tape. Financial consolidation and raising tax revenue is also critical, given the high level of public debt.

None of this is easy, and will be resisted by vested interests. That is one reason past efforts stalled. Some believe Mr Abe will back away too.

TENSIONS NOT APPRECIATED

There is suspicion that his true ambition is not economic reform but to raise Japan’s security capacity. The Premier has mentioned revisiting the country’s pacifist post-World War II Constitution — a move controversial both at home and abroad. Already some in Beijing accuse Japan of building up naval and other defence forces to target China.

Pursuing security ambitions would dissipate Abenomics and should be resisted. With contention over the Senkaku/Diaoyu islands, the possibility of incidents and skirmishes at sea cannot be ruled out. Even short of that, Sino-Japanese turbulence could spill over and negatively impact Asian cooperation.

Much will depend on American policy. But others in Asia would do well to tell Tokyo clearly that tensions are not appreciated. The present need instead is for dialogue on financial policies — both Asian giants are adjusting credit and other economic tools at the same time and the yen-yuan relationship could have outsized impact on the region.

Asians should also keep encouraging Abenomics. This can come through economic agreements — the United States-led Trans Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), which is centred on Association of South-eat Asian Nations (ASEAN) and brings in all major Asian countries.

Tokyo is a key player, given that the US is not in the RCEP, and China stands presently outside the TPP. Concessions garnered in the agreements could help Mr Abe push through the pain of structural changes, with the agreements serving as external anchors to domestic reform.

BILLIONS IN INVESTMENTS

Reform and these economic agreements could fundamentally transform not just Japan’s domestic economy, but also how it relates to the rest of Asia and especially ASEAN. Take for example, investments.

Abenomics is triggering a resurgent interest in ASEAN. Early signs include Toyota’s US$2.7 billion (S$3.4 billion) commitment at end of last year to expand production facilities in Indonesia. Another, and still on-going, Japanese multi-billion-dollar bid is by the Japanese financial group, MUFG, to buy Thailand’s Bank of Ayudha.

There is also potential for more two-way flow, for other Asians to invest in Japan. Deregulation and a single window of procedures will be needed. But if the yen is lower and stable, and the economy growing, the country will have its appeal.

Reform can also gradually open the society for more Asians with skills to work and study in Japan, increasing people-to-people contact.

Although China and South Korea have closed the gap in the past decade, a reforming Japan can respond and indeed set the pace. Already a softer yen has made South Korean companies complain about their eroding price competitiveness in export markets.

In some areas, Japan offers a combination of technology, know-how and low-cost capital that China cannot match.

When he came into office, Mr Abe made the point of visiting ASEAN countries first, as did other leading Japanese Cabinet members. A new Japan-ASEAN partnership can be forged.

Yet, even if Abenomics succeeds (and there remain doubts), there is no return to the days when Japanese invested in ASEAN for cheap land and labour and dominated the region, with little competition. China and Koreans have emerged as factors, and will remain important. Many ASEAN countries and corporations have also made significant progress towards equality.

A revitalised Japan would benefit the region — but its future relationship with a rising ASEAN must be more two-way, and woven into the wider regional integration.

ABOUT THE AUTHOR:

Simon Tay is chairman of the Singapore Institute of International Affairs and Associate Professor at the National University of Singapore Faculty of Law.

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