Bloomberg News

Abe Poised for Second Turn at Helm as Japan Contracts

December 10, 2012

Shinzo Abe

Shinzo Abe, Japan's former prime minister and president of the Liberal Democratic Party (LDP), center, shakes hands with a candidate at as campaign rally in Fukushima City, Fukushima Prefecture, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

Shinzo Abe quit as Japan’s prime minister five years ago, citing an intestinal disorder and apologizing for being unable to fulfill his duties. Now on the verge of retaking office, redemption may depend on whether he can repair an economy that’s deteriorated in the interval.

Abe became the country’s youngest postwar premier in 2006 only to resign a year later. He was tapped in September again to lead the Liberal Democratic Party, which is forecast to regain power in the Dec. 16 parliamentary election after its half- century domination of Japan’s politics ended in 2009.

Having foundered in a tenure undermined by a pension scandal and his own illness, Abe now faces a shrinking economy, diplomatic tensions with China and the aftermath of a nuclear meltdown. With successive prime ministers seeing initial public support evaporate, he would also need to manage the expectations of a disillusioned electorate that’s seen five heads of government since Abe, 58, was last in office.

“The question is can Abe get tough, can he push something through and not mind making enemies?” said LDP legislator Katsuei Hirasawa, who was a tutor to Abe more than 40 years ago. “We will have to see, but what I am hearing from him and those close to him is, he has learned from his experience.”

Polls show the LDP and its junior coalition partner New Komeito are heading for a majority in the Diet’s 480-seat lower house. The coalition may win more than 300 seats, up from the current 139, while Prime Minister Yoshihiko Noda’s Democratic Party of Japan is likely to win less than 80, down from 230, according to a Sankei newspaper poll published today. The survey of 43,273 people gave no margin of error.

‘Lacked Experience’

A victory would enable Abe to become the first politician in 64 years to recapture Japan’s premiership. Then-Prime Minister Junichiro Koizumi tapped him as his successor despite Abe having less than a year of experience in the Cabinet.

“He was extremely young and popular, but looking back he probably lacked experience,” said Hiroyuki Hosoda, an LDP lawmaker.

When he took over from Koizumi, Abe inherited an economy in the midst of its longest expansion in 60 years. In more than five years in office, Koizumi had forced banks to write off 19 trillion yen ($231 billion at today’s exchange rate) in bad loans and left with an approval rating above 50 percent.

Now, what has become the world’s third-largest economy -- following China’s ascendance to the No. 2 rank -- has sunk into a recession as manufacturers such as Panasonic Corp. (6752) and Honda Motor Co. (7267) grapple with a strong yen and falling demand from China. Japan’s currency has strengthened 40 percent against the dollar since Abe stepped down on Sept. 26, 2007, while the benchmark Nikkei 225 Stock Index has declined by half.

Political Pedigree

Abe’s popularity within the LDP derives in part from his pedigree -- he is the grandson of Prime Minister Nobusuke Kishi and son of ex-foreign minister Shintaro Abe, a faction boss who was a contender for the top job before he died. Shinzo Abe grew up in a house with servants and attended private schools in Tokyo. Hirasawa remembers taking his pupil to a university dorm to show him how the other half lived.

“He went to a school for the rich and they had maids at home,” Hirasawa said. “Normally speaking, people grow up experiencing unpleasant things like bullying and fights. I don’t think he had those experiences.”

After graduating from Seikei University with a degree in political science in 1977, Abe took a job with Kobe Steel Ltd. (5406), then became a secretary to his father before being elected to Shintaro’s constituency in 1993. During the Koizumi administration, he served as a deputy cabinet secretary and then chief cabinet secretary.

First Stint

In his first stint as prime minister, Abe focused on foreign and military policy -- upgrading the defense agency to a ministry, and unsuccessfully pushing to revise the pacifist constitution to specify Japan’s right to self-defense. He visited Beijing and Seoul to smooth ties frayed by Koizumi’s annual trips to Tokyo’s Yasukuni shrine, which memorializes World War II war criminals.

He resisted calls to raise the sales tax to cope with Japan’s record debt, a measure Noda, 55, passed in September, and failed to address deepening deflation. Abe’s government was soon derailed by a scandal over missing pension records, the suicide of one cabinet minister and the resignation of four others. Ten months after he became leader, his party lost upper house elections to the DPJ. Abe stepped down two months later.

Historic Loss

Abe’s resignation kicked off a series of abbreviated terms, with his two LDP successors also quitting after a year in office. The party later suffered an historic loss in 2009 after being in power for all but 10 months since 1955.

Noda’s party swept to victory on a platform of political change, with vows to rein in the power of bureaucrats and expand support for families in a nation with a shrinking population. A policy flip-flop on the U.S. military presence in Okinawa hobbled the DPJ early in its tenure, followed by perceived slowness to respond to the Fukushima nuclear crisis in 2011 and scaled-back plans to strengthen social spending.

The revolving-door of leadership failed to end with the LDP’s 2009 loss, with Noda the DPJ’s third premier. Japan’s fractured electorate has flirted in polls with new parties, including one formed by Osaka Governor Toru Hashimoto. More than half of voters support neither major party.

The DPJ will retain a plurality in the upper house of Parliament after next week’s election, adding to Abe’s challenges.

Not Smooth

“He will still be stuck with the hung parliament, so I don’t think things will go smoothly,” said Tomoaki Iwai, a politics professor at Chuo University in Tokyo.

While Abe has called for strengthening Japan’s hold of islands at the heart of a dispute with China and boosting defense spending, his campaign has focused on economic measures -- including expansive monetary easing to try to end more than a decade of deflation.

Stocks have jumped in anticipation of greater stimulus, with the Nikkei 225 Stock Average rising 8.9 percent in the past month, compared with a 4.1 percent gain for the MSCI Asia Pacific Index. Bonds have also rallied amid speculation of more Bank of Japan (8301) purchases, with 10-year government-debt yields falling to a nine-year low of 0.695 percent on Nov. 30.

Abe has lobbied for more fiscal stimulus and said economic conditions next year will determine whether the sales tax increase proceeds as planned. Guiding an economic recovery could go a long way toward erasing doubts associated with his first time in office.

“It has made him a more experienced and more judicious politician,” said Koichi Hamada, an emeritus professor of economics at Yale University who has advised Abe. “At the moment he resigned, he probably felt disappointed he hadn’t accomplished a lot of things. He learned a hard lesson.”

To contact the reporters on this story: Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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