TOKYO – Japan needed a bang. What it got was a whimper. Case in point? Yoshihide Suga.
The newly minted prime minister has bigger troubles than recent drops in economic data as Covid-19 fallout continues to hammer exports. Have you seen the leader’s approval ratings?
One month after Suga took the reins on September 16 from Shinzo Abe, his support rate had tumbled 11 points, according to the Nippon Keizai Shimbun. A shaky economy is one reason. The bigger one, though, is that Suga has been remarkably quiet in desperate times.
In his first four weeks, there was weak data on retail sales and investment and ominous reminders that the deflation Abe spent nearly eight years promising to defeat was making a comeback. In Washington, US President Donald Trump threatened to intensify his trade war. In Pyongyang, Kim Jong Un telegraphed the return of missile tests in short order.
What did Suga have to say about all this? Not much.
Though he did visit Southeast Asia, his meetings in Hanoi and Jakarta seem out of step with the great power struggle between the US and China that Japan now finds itself in the middle of.
Nor did Suga’s first speech before parliament this week wow the nation. And his big push to go carbon-neutral by 2050 lacks audacity and specifics.
Sure, his talk of lowering mobile phone bills, digitizing the government and getting the 2020 Tokyo Olympics back on track in 2021 sound nice.
Mostly, though, Suga seems set on sticking with an Abenomics reform process that’s been stuck in first gear for years.
“Suga,” says analyst Christian de Guzman of Moody’s Investors Service, “is likely to maintain his predecessor’s overall policy approach to reflating the economy, albeit under the challenging circumstances presented by the coronavirus pandemic.”
In other words, Suga isn’t sending hearts pitter-pattering among the nation’s 126 million people.
It’s early days, yes. But the early drop in Suga’s support rates aren’t promising as things go in change-averse Japan. Before Abe, Japan saw six leaders come and go in quick succession — lasting about a year each and getting next to nothing done
Abe was among them, with his first stint as prime minister running from 2006-2007. In his second stint, from 2012-2020, Abe broke the pattern by becoming Japan’s longest-serving prime minister.
But Abe’s list of economic reform successes was small and debatable. His moves to tighten corporate governance did indeed enrich shareholders, but not tens of millions of workers who’ve barely had a decent raise in decades.
The most damning indicator of Abenomics’ success-failure was how quickly Japan has cratered since the pandemic hit.
It now falls to Suga to right the ship, before it takes on too much water. Suga was never an obvious, or particularly charismatic, replacement for Abe. He was, however, the safe choice when Abe resigned abruptly for health reasons. As Abe’s loyal chief cabinet secretary, Suga represented continuity.
Now, though, there’s every reason to wonder if Suga will mark a return to the 12-months-per-man cycle of the pre-Abe era. If he’s going to avoid Tokyo’s revolving door, Suga needs to put some big wins on the scoreboard – and the sooner the better.
The biggest lesson from the Abe years is the need to move fast and big.
After taking the helm in late 2012, Abe erred in thinking aggressive Bank of Japan easing would be enough to resurrect Japan’s animal spirits. What Abe got was several years of economic growth, but no wage growth.
That deprived Japan of the virtuous cycle of consumption, inflation and innovation Abe promised. It also puts Suga at a great disadvantage.
Before he arrived in the prime minister’s residence, the ruling Liberal Democratic Party threw more than US $2 trillion at a slowing economy, representing about 40% of gross domestic product (GDP). The BOJ has actually expanded its balance sheet beyond the size of Japan’s $5 trillion economy.
So, sorry Suga: The low-hanging fruit stimulus options have already been grabbed.
That does not mean, of course, that there is no more conventional pump-priming to be done. On Wednesday, Reuters reported that Suga plans to up spending anew. Some political powerbrokers are pushing for a roughly $95 billion package.
But the bigger need is for Suga’s government to get on with the upgrades Abe punted forward: loosening labor markets; reducing bureaucracy; tweaking tax and regulatory measures to catalyze a startup boom; taking steps to increase productivity; empowering women; and importing more talent from abroad.
This week, Taro Aso, Suga’s finance minister, said Tokyo should exploit Hong Kong’s China troubles to increase its appeal as a business hub. “We need to think about a lot of things, including setting up something like a special zone” to woo banks that might leave Hong Kong as Beijing clamps down, Aso said.
Yet that will require some serious heavy lifting to compete. Topping the list: exorbitantly high corporate tax rates; labor protections that favor seniority over talent; rigid immigration laws; and poor English proficiency.
Tokyo has lots going for it, to be. sure It’s the business and market core of the world’s No. 3 economy, home to one of the world’s biggest groupings of Fortune 500 companies and home to a top-three global currency. And it is home to one of the globe’s biggest pools of pension assets.
But Tokyo’s 55% top income tax rate turns off many multinational CEOs. So does treating capital gains as income, unlike Singapore or Taiwan. Finally, Japan ranks behind Russia in the World Bank’s ease-of-doing-business survey. It is 27 rungs behind Singapore, 26 behind Hong Kong and 24 behind Korea.
As Tokyo Governor Yuriko Koike correctly puts it, the city’s financial prospects are marred by “regulations and tax systems that are far from global standards [and] have prompted the world’s financial institutions to go to Singapore, Hong Kong and Shanghai where it’s easier to do their jobs.”
Suga also must address Tokyo’s high costs. Though Hong Kong rents now top Tokyo’s, higher taxes more than make up for them. Japan should offer office-space subsidies to startups, or provide more regulatory alerts or prospectuses in English.
On the bright side, Suga’s green growth initiative could be a game-changer. One of Abe’s biggest blind spots was championing nuclear power at the expense of all else. Rather than shift the energy mix to safer renewables, Abe became a hawker for nuclear technology sold by Hitachi and other Japan Inc icons around the globe.
That was despite public discontent about reactors following the 2011 Fukushima radiation crisis. Abe’s team stepped up efforts to use coal-fired power plants at home and sell them abroad. That dimmed Tokyo’s global standing on environmental leadership.
“Climate change was easily Abe’s greatest sin of omission,” says analyst Tobias Harris of Teneo Intelligence and author of Abe biography The Iconoclast.
It’s wise for Suga to plot a carbon-neutral future – and to couple it with Tokyo’s financial-hub aspirations. It’s not enough to create bourses to trade wealth. Japan needs to create wealth, too. Nowhere is the potential greater than in inventing and commercializing ways for China, India, Indonesia and others to grow rapidly without choking on it.
Yet here, too, Suga is being timid. Japan should be targeting 2030, not 2050, for carbon neutrality. Tokyo should pad the coming $95 billion spending plan with funding to jumpstart investment in harnessing the natural resources it does have: all the ingredients for revolutions in wind, solar and geothermal power.
Suga’s team also must devise safety nets to catch, or soften the fall, for risk-takers in the renewables space. Japan’s rote educating and societal taboos against failure run counter to the Silicon Valley ethos needed to compete in a region racing ahead.
Despite its global reputation as a high-tech wonderland, Japan lags in multiple areas.
Joe Bauernfreund, CEO of AVI Global, likes that Suga “has placed digitalizing Japan’s economy at the center of his administration.” He points out that “Japan’s IT systems are outdated, inefficient and in much need of improvement.”
For example, many Japanese government offices and companies still use fax machines. And only now is the ruling LDP getting around to reducing Japan’s reliance on the archaic practice of hanko stamps, which are required for tens of thousands of procedures to sign off on documents.
“During the coronavirus pandemic,” Bauernfreund notes, “workers would have to go into the office just to stamp paper documents before either mailing or faxing them – a totally useless task.”
Yet Suga must think bigger and act faster. Something Abe never got: Japan is no longer experiencing conventional time but rather is now on China time.
Just as dogs age seven years for every 12 months in human time, China’s rise is accelerating clocks across Asia. Elsewhere, developing Indonesia has already minted twice as many tech “unicorns” as G7 member Japan.
Seen in this context, Suga’s 2050 timeline is alarmingly unambitious. And a very Japanese political clock is ticking.
Goal one is to stick around long enough to implement an economic agenda. Japan must hold a general election before October 2021. Suga has yet to prove he can go the distance.
It’s grand that Suga promises a “shift in thinking,” something he claims is vital to “leading to major growth” and innovation. Yet this wake-up call to Japan Inc icons lagging international rivals is well taken, but it requires bold leadership from the very top.
Abe came up short during his 2,821 days in power. That was clear enough from how rapidly Covid-19 knocked the economy on its back. Japan’s coronavirus caseload is nothing relative to G7 peers, but Japan is being left in the dust as China recovers and South Korea follows close behind.
Suga must do better. But 43 days in, Suganomics is already in a race against time as falling approval ratings collide with a panicked global scene.