The good economic news continued for Japan in 2018 despite a temporary, natural disaster-induced third-quarter downturn. Nonetheless, domestic and foreign policy developments were more challenging in the year for Prime Minister Shinzo Abe, writes Corey Wallace.
Japan began 2018 well-positioned to enjoy broad-based policy and political continuity. Prime Minister Shinzo Abe had just seen off an initially strong challenge from Tokyo Governor Yuriko Koike in the October 2017 general election, guaranteeing the ruling Liberal Democratic Party (LDP) a lower house majority past 2020.
Mr Abe’s proactive diplomacy was still winning friends in Asia and seemed to have tamed the impulses of a US president who felt strongly that Japan was exploiting the United States through the trade deficit and US–Japan alliance.
Japan continued its longest run of economic expansion in almost three decades, registering robust growth of 1.7 per cent throughout 2017. Public opinion pointed to Mr Abe winning a third term as LDP president, leading him to declare 2018 a year of action on constitutional revision.
While the economic good news continued, domestic and foreign policy developments were more challenging.
Domestically, the first three months of Diet deliberations and media scrutiny were taken up with the most incriminating revelations yet about political favouritism in the school-related ‘mori-kake’ scandals. A significant drop in cabinet support had some media writing Mr Abe’s political obituary and weighing up replacements. But US President Donald Trump’s sudden shift to engagement with North Korea and his trade pressure on Japan then overtook Mr Abe’s agenda, and geopolitical uncertainty likely aided Mr Abe’s re-election as LDP president in September.
The Abe administration took heat over proposed amendments to the Immigration Control Act in an extraordinary Diet session in October. Potentially allowing up to 340,000 foreign workers to enter Japan over five years to fill labour shortages in designated sectors, the changes were initially appraised positively by the public.
Opposition criticism of insufficient implementation transparency increasingly gained traction, as did concerns that the government had failed to prepare accompanying measures to minimise the potential for exploitation of foreign workers or downward pressure on Japanese wages. Despite 2018 being a make-or-break year for constitutional revision, these distractions have forced Mr Abe to delay the introduction of any referendum proposal until at least 2019.
Geopolitically, the facade of Mr Abe being Mr Trump’s best friend in Asia was shattered. The US president appeared to ignore Japanese preferences in his optics-focussed diplomacy towards North Korea, Japan was not included on the April aluminium and steel tariffs exemption list, and Mr Trump directly threatened to impose further tariffs on Japanese autos.
The Japanese government, now simply trying to avoid punitive measures, promised to purchase greater quantities of US liquefied natural gas and arms, including up to 100 F-35 fighter jets for a cost of 1 trillion yen ($8.8 billion). Japan also relented on its opposition to negotiating a bilateral trade deal that would consider granting the United States agricultural market access comparable to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
The result of the US midterm elections may make foreign policy an even greater focus for Mr Trump. And with the Mueller probe into foreign election interference likely to come to an end in 2019, further erratic behaviour could still unsettle the US–Japan alliance.
Elsewhere, Mr Abe’s relentless personal outreach to Russian President Vladimir Putin (now 23 summits in total) and the softening of Japan’s position that all four disputed southern Kuril Islands should be returned at once resulted in limited but forward progress in Japan–Russia relations. The Japanese working relationship with South Korea remains robust but higher-level diplomatic engagement is going in the wrong direction, most recently due to a Korean Supreme Court ruling on forced wartime labour compensation. Strategic relations with India, Australia, New Zealand and Asean nations continue to deepen.
The most surprising 2018 geopolitical development for Japan was China–Japan relations tightening to a much greater degree than expected. Mr Abe’s October visit to Beijing saw 52 projects identified for ‘third-country’ cooperation, partially aligning both countries’ much-touted connectivity agendas. The $18 billion package of agreements most notably includes infrastructure cooperation in the Thai government’s flagship industrial transformation project, the $43 billion Eastern Economic Corridor. With Regional Comprehensive Economic Partnership negotiations also finally progressing, Mr Abe continues Japan’s strong proactive engagement throughout Asia.
The good economic news continued for Japan in 2018 despite a temporary, natural disaster-induced third-quarter downturn. Unemployment remains low and the high ratio of job openings to applicants reached 1974 levels. Record corporate profits of recent years are now being reinvested in Japan, and record bonuses and a robust increase in real wages are driving a long-awaited increase in private consumption.
Abenomics proponents will be happy with increasing core inflation (excluding energy and food), forecasted to exceed 1 per cent in 2019. Still, healthy domestic demand aided by the run up to the 2020 Tokyo Olympics will be sorely needed, with Japanese exports expected to soften in 2019 and as the impact of the consumption tax rise is absorbed.
In 2018 Japan restarted five nuclear power plants, more than doubling 2017 operating capacity. The increase in global natural gas and oil prices witnessed in 2018 will make nuclear restarts even more tempting given both economic and carbon reduction benefits. Consensus on Japan’s energy policy remains a challenge and with the 2019 House of Councillor’s election shaping up to be more competitive than those of 2013 and 2016, energy policy has the potential to become a major political issue again.
Corey Wallace is the Einstein Postdoctoral Fellow at the Graduate School of East Asian Studies, Free University of Berlin. This article is part of an East Asia Forum special feature series on 2018 in review and the year ahead and can be assessed at https://bit.ly/2GDWgTr