All the ebb and flow of the past two weeks among Japan’s political classes have brought a couple of interesting issues to light vis-à-vis electoral promises, and it is on these that this post will concentrate its limited resources and try to discern where such promises are headed. The first concerns an agreement reached by Reformist Party leader Hashimoto Toru and Party of the Sun leader Ishihara Shintaro on the weekend of 17th of November to bring their parties together in order to contest the House of Representatives election on December 16 (J). One surprising aspect to this agreement was the fact that Ishihara appeared to have thrown out his own objections to Japan joining the TPP, along with his insistence on the continued use of nuclear power to meet energy needs (or at least, this was the position of the Sunrise Party, aka the very short-lived Party of the Sun).

The desire of both political personalities to join up before the general election forced some concessions out of Hashimoto as well, including a repeal on political parties receiving donations from corporate sponsors (apparently sparked by concerns from members of the Party of the Sun that they can’t contest an election without corporate funding) (J), along with a repeal of a ban on Reformist Party members simultaneously holding more than one official position (this refers to Hashimoto’s own ambitions for the national Diet. At present he cannot serve as both Mayor of Osaka and as a member of the House of Councillors. In an added twist, the Reform Party’s own eight point policy platform (launched in August) stated that the party would seek to abolish the upper house of Parliament. Apparently this too has fallen by the wayside lest Hashimoto make it to the Diet only to abolish his seat).

While Hashimoto and Ishihara have been sorting out their respective differences (as a short diversion, Ishihara addressed the Foreign Correspondents Club on Tuesday the 20th to give his support to Japan’s acquiring the capacity to run nuclear weapon simulations (E and J).  Just how that sits with the Reform Party is unknown, but given Hashimoto’s previous comments in support of collective self-defence, probably not a point of contention between two bona-fide “hawks”).  At present (27th of November), polling shows that the Reform Party is on course to becoming an viable alternative to the DPJ (J), thus raising the prospect of the LDP having to acquiesce with the Reformists on questions of fiscal responsibility, defence upgrades, and constitutional revision. Given the sympathy shared on both sides on these issues (not to mention PM Noda’s shift to a more strident nationalistic stance on territorial issues, a stance shared by those remaining DPJ members), Japanese politics could be about to get a lot more rightist. It should be noted, however, that this does not necessarily mean that the broader society will embrace nationalism, nor agree to a more confrontational approach to regional relations.

What this election promises in terms of highlights (if that is indeed possible) are the various proposals from the contenders on how to resolve Japan’s economic woes. First to throw his hat into the fiscal ring was Abe Shinzo, who announced that in order to revitalise the economy he would have the Bank of Japan issue a continuous series of easing solutions to stimulate the economy and bring inflation up to a target of 2%. While Abe has retreated from earlier statements that in order to bring the BoJ and the LDP into sync, the LDP would consider revising the law guaranteeing central bank neutrality from the federal government (“Party leaders diverge on best plan for Japan”, The Australian, November 26 2012, p.24), his faith in easing has not wavered despite all evidence that it is, at best, a temporary measure and would further add to Japan’s already astronomic levels of public debt (a dip in the yen after Abe announced his policy was taken as proof, by Abe, that the market favoured his strategy, yet its rebound thereafter went unnoticed).

Abe’s insistence on monetary easing as a means to recovery, and his comments on reducing the independence of the BoJ had BoJ Chairman Shirakawa Masaaki concerned enough to state in public that the BoJ’s neutrality should be respected and that quantitative easing in itself could not cure all of Japan’s financial ills. Given that Shirakawa has advocated a more robust series of reforms, including de-regulation and higher workforce participation by women, he is regarded as a “maverick” by Japan’s conservative political classes who have continued to rely on outdated models of fiscal stimulation out of fear of what more fundamental economic and social reforms might unleash (“Monetary policy no cure-all for Japan”, AFR November 26 2012, p.31). As such, expectations are that should Abe be voted in as PM, Shirakawa will be one of the first public officials to go, and will be replaced with someone more “compliant” to the LDP’s only strategy for growth (as an aside, the LDP is, in principle, opposed to the TPP as a result of the impact that the trade pact could have on the LDP’s traditional rural support base, and will only agree to it if certain sectors of the Japanese economy remain tariff-bound, thereby undermining the purpose of the TPP).

Abe’s questionable economic program is also raising eyebrows within the Keidanren (Japan Federation of Economic Organisations), if comments by Keidanren President Yonekura Hiromasa are anything to go by. When asked for his opinion on Abe’s strategy of monetary easing, Yonekura replied that “it’s more reckless than grand”, adding that for a party to consider using an economic strategy banned by other countries amounted to little more than foolhardiness (J, although the fact that Yonekura said this while in China to participate in “friendship” discussions with Chinese counterparts might have been an attempt to separate him from Abe’s more nationalistic rhetoric).

At least Abe can be congratulated for actually putting a growth policy forward, unlike the other parliamentary parties whose own economic policies seem retrogressive, if not downright anti-growth, namely: anti-TPP (is it better to sacrifice belonging to an free trade agreement so as to protect an unprofitable, aging domestic sector?), anti-nuclear (understandable, but what are the alternatives? Solar? Wind? If you think electricity prices are expensive now, they’ll be diabolical during the process of switching to sustainable energy sources), and anti-tax increases (social restructuring might take care of this, but good luck getting the major parties to agree to upsetting business and industry by dismantling pro-business work practices, not to mention abandoning 20 years of debate and a final agreement to raise the consumption tax rate).   In the case of the Communist Party, you could add anti-US to that as well, but I digress.

In short, expectations with regard to the major parties in this election are not high, given the track record of both the LDP and DPJ. While the Reformists promise change, they may be too extreme for many Japanese citizens to accept as the main opposition party. Minority parties may come to exercise more influence on government than in the previous Parliament (for better or worse), while the fiscal situation of the nation will not improve without more radical departures from existing methods for growth.

Monday saw the release by the Noda Cabinet of GDP figures for the period from July to September 2012, which showed a 3.5% drop in GDP, the largest since last year’s earthquake and tsunami disaster. For economic observers (and Minister for the Economy Maehara Seiji), this has triggered alarm bells that Japan is, yet again, in danger of falling into recession, making it the fifth (or sixth) recession suffered by Japan in fifteen years (E and E). According to Richard Koo, chief economist at the Nomura Research Institute, private sector saving in Japan is at 9% of GDP, a significant amount and one that is indicative of the contraction in the Japanese economy (this trend shared by many other countries with high levels of government debt to GDP, although in the case of Japan it has been exacerbated by over-reliance on government borrowing to fill the gap created by a lack of privately generated revenue).

At the same time that Japan’s government debt to GDP is at 230%, making it the highest of any industrialised economy (and on track to hit 270% by 2017), Japan is also facing a looming social security crisis in its aging population. In two years’ time, 1 in 4 Japanese citizens will be aged over 65. By 2022, 30% of Japan’s population will be over the age of 65 (Max Walsh, “Japan’s sorry state a lesson for others”, AFR November 13 2012, p.55). What this of course means is that bar a sudden surge in taxation revenue and welfare reform, Japan’s population is going to experience a calamity in aged care the likes of which modern societies have never been seen before. There will, in other words, be an increase in elderly deaths as a result of neglect rather than natural causes, an unprecedented situation for a modern state and one that will lead to condemnation of the state for its failure to provide the basic needs of its citizens.

While the Noda government has made attempts to redress the looming demographic crisis by pushing through legislation to raise sales tax rates and issue state bonds (which have led to splits within the DPJ, not to mention tough negotiations with opposition parties to gain their consent for such measures) , the standard government response to negative economic data has been to turn to the Bank of Japan to provide stimulus packages to bolster small increases in growth.  The problem is that such measures are only temporary, and have not solved the more fundamental need for economic reform that lies at the heart of Japan’s current economic malaise (E). For the best part of two decades, economists, journalists, academics, indeed the whole span of Japan’s intelligentsia have been calling for greater de-regulation and reductions in trade barriers, tighter fiscal spending, prioritisation of FTAs, greater domestic market access for foreign companies and support for foreign investment in Japan in order to shake up a lethargic domestic market and increase competition among domestic industries. Yet the outcome of all this effort has been disappointing, to say the least. Despite evidence that twenty years of quantitative easing measures have done little to alleviate long term problems (and have instead exacerbated them by increasing public debt), no political party has approached questions of fundamental fiscal reform with anything like the sort of fortitude necessary to make them happen, and so old methods have been clung to out of the belief that they are the only (acceptable) means of dealing with large scale fiscal problems.

This makes recent speculation about whether Japan will formally join TPP negotiations with a view to becoming a member all the more intriguing while simultaneously undermining hopes that Japan will make a decision in its own best interests.  At the heart of the argument against Japan joining the TPP is the Japanese agricultural sector. For Japan to agree to join the TPP would, according to the said industry (and former /current government ministers reliant on rural votes), destroy Japan’s agriculturally based businesses and eliminate Japan’s (already reduced) levels of food self-reliance. These concerns are, however, are mooted by the fact that Japan’s agricultural sector is already fossilised (a majority of farmers are aged over 60, and do not rely solely on farming as their main source of income), heavily subsidised (to the detriment of other, more profitable sectors), and long overdue for exposure to foreign competition. Any decision to join the TPP would have to followed by an equally firm response to attacks from the agricultural sector, something that neither the LDP nor DPJ have been willing to do while rural sectors provide both parties with a large source of votes (E). Hence the fact that PM Noda has been reviewing Japan’s position vis-à-vis the TPP (J) has once again led to suspicions that more members of the DPJ will exit the party rather than risk their re-election chances on an initiative that is not in their immediate interests (J). 

Speaking of elections, on Wednesday night PM Noda made it clear that, if the LDP/Komeito opposition parties were prepared to support two DPJ bills to reduce the number of electoral districts (a plan initially advocated by the LDP/Komeito Coalition) and approve the release of debt reduction government bonds, then he will dissolve parliament on Friday with voting for House of Representative seats to take place one month later (J).   As many commentators and editorials have noted (J), for a PM to announce the specific date for a general election on the floor of the House of Reps is a rare event in Japanese politics, and evidence that PM Noda, having decided that the falling popularity of the DPJ, internal party friction, a poor economic forecast, Ozawa Ichiro’s being found innocent (once again) of fiscal impropriety, and the possibility of a third national party gaining traction in DPJ seats (such as a coalition between Hashimoto Toru’s Reform Party, Ozawa’s People First Party, and the newly formed “Party of the Sun” of Ishihara Shintaro) may spell electoral annihilation for the DPJ should the situation be allowed to continue into the new year , and so bit the bullet and made his offer knowing that it would be accepted.

Yet as the WSJ Japan editorial pointed out, even if Abe Shinzo and the LDP were to return to power after three and a half years in opposition, what would this mean for the nation? Given the fact that the LDP were originally ousted in 2009 after the populace grew tired of ineffectual politicians mouthing empty platitudes, government rule by the DPJ proved to be just as disappointing as its predecessor. Hence it is difficult to believe that Abe and the LDP, as bastions of the old order of political rule, can offer any new initiatives (or shake-up long stagnant policies) to a cynical public who have seen government change hands only to end up in exactly the same malaise as before (J). Gerald Curtis has pointed out that what Japanese politics lacks at present is any sense of political leadership, of actually taking those decisions which ultimately will prove beneficial to the nation in the long term. This, Professor Curtis explains, is indicative of a political system that is still beholden to the bureaucracy, a situation that will not change for the foreseeable future (E). If Abe actually had the capacity to lead then there might be grounds for optimism, yet Abe is as captive to the interests of his party and its bureaucratic ties as he has ever been.

At the very least, the general election may produce some entertaining moments of unbridled bombast, rhetorical contortions, and hyperbole gone overboard. What it won’t produce is an answer to the slow disintegration of Japan’s political system, and might ultimately be ruled unconstitutional (given the fact that the electoral district map has not been finalised pending a decision from parliament, and that the Supreme Court of Japan has ruled that the current map is invalid).

If ever you wanted a picture to describe the state of affairs between two nations, then that taken at the beginning of the latest Asia-Europe Meeting speaks volumes without a word being spoken (see left). What we essentially have is Chinese Premier Wen Jiabao walking nonchalantly past PM Noda without so much as a wink, nod, hand gesture – nothing. Just staring straight ahead and making his way to the exit. Meanwhile PM Noda looks on glumly, possibly thinking…“well, that could have gone better.” Such is the level of frostiness between the leaders of the world’s second and third largest economies that they have resorted to “blanking” one another, and that doesn’t bode well for the immediate future.

Even when compared with the physical gestures on display at APEC in September (see here), the above picture illustrates that top-tier relations between leaders in China and Japan have plummeted to new depths, driven in part by domestic concerns in both countries, rising nationalism, and what commentators refer to as a strategic shift in the region towards China.

On that note, why is China pushing Japan hard on this issue? There may be two reasons for this. One is that both the CCP and PLA have reached an agreement by which the state will use its growing military and diplomatic power to marginalise Japan at every opportunity, place pressure on Japan’s territorial claims and thwart Japan’s economic agreements and assistance programs with South-East Asian and African nations. In other words, reinforce the impression that Japan is no longer the main representative of Asia, that it is not capable of withstanding China, and that states in the Asia-Pacific and other developing regions should recognise China as their natural partner and ally and not the former “fascists” of Japan (this term has crept back into statements and speeches by representatives of the CCP and PLA, as a subtle reminder in case anyone has forgotten WWII). 

The second reason may be more limited in scope, but its implications are more serious. The PLA may indeed be working on a policy of confrontation in order to push the CCP into accepting the need for greater levels of defence funding. To allow Japan to act unimpeded in waters that China regards as its own leaves the CCP looking weak when faced with Japanese “aggression”. If the PLA sustains the pressure on Japan’s maritime borders and territorial claims, the CCP benefits in being seen to stand up to Japan while the PLA (and related maritime security forces) get the budget they require (in that sense, former Tokyo Governor Ishihara Shintaro gave China the excuse it was looking for to advocate its claim to the Senkaku Islands in a sort of triumph of short-sighted populism over long-term national interest).

The problem is, of course, than any unilateral action by the PLA at sea (or Japan Coast Guard, for that matter) would risk igniting a regional conflict, and given the absence of any forms of emergency communication between the leadership of both countries, even an accident could be misinterpreted as an act of hostility and lead to open conflict.   Despite claims by both sides that they are acting in accordance with international law, and that they are exercising their right to claim the island group based on evidence of ownership dating back centuries (at least, this is what China claims. Japan does not believe an issue exists about the islands – they are Japanese, no more needs to be said (J), one gets the impression that neither side is keen to reach an early solution to the standoff (the Noda government's decision to pre-empt Ishihara and offer to purchase the islands was an attempt at a solution, although it merely played into Ishihara's hands and exacerbated the problem. It is interesting to note that since the islands are considered private property, what prevented previous Japanese governments from nationalising them when China's first claims to the Senkaku Islands emerged in 1972 and especially after Okinawa was returned to Japanese sovereignty in the same year?  The answer probably lies in the belief that China would never develop the capacity to challenge Japan's control of the islands.  The Cold War was in full swing, China was a chaotic mess as a result of the Cultural Revolution, and Japan's economy was ticking along nicely (albeit slower than the previous 20 years). As the US was still involved in Vietnam, its military presented a significant barrier to the real threat in East Asia at the time- the Soviet Union, which had no interest in islands immediately south of Japan. Hence the complacency with which successive LDP governments treated the issue).

As an aside, how would things play out if one side conceded to the claims of the other? In the case of Japan, to recognise China’s claim to the Senkaku Islands would mean that other islands under dispute between Japan and its neighbours (Takeshima with South Korea, and three of the Kurile Islands with Russia) would become the focal point of pressure by those countries to force Japan to cede its claims. Domestically the DPJ would be vilified by the right-wing press for a lack of resolve, it would come under sustained attack from the LDP and Komeito (not to mention the Reform Party and whatever party Ishihara Shintaro manages to cobble together) in the Diet, and the lives of DPJ members would be placed at risk from far right wing groups (who are not averse to taking out their frustrations on individual politicians). Japan’s reliability as an ally would come under question by the US, for what would be the point of guaranteeing Japan’s territorial integrity if it were willing to throw it away as a result of pressure, not actual force but pressure, from China?  At the next general election the DPJ would be swept out of power, possibly in perpetuity, for giving up Japan’s sovereignty in the face of foreign aggression.

This pent up anger at Japan’s acquiescence could then ferment popular dissent and lead to attacks on public figures identified as “traitors” to the state, thereby pressuring whatever party follows the DPJ to take a more confrontational stance on territorial issues. The public climate would then lead to more fervently nationalistic rhetoric among media commentators and writers, and bring about calls for active constitutional revision. Given the climate of “humiliation” and a desire for revenge against Japan’s neighbours for forcing it into a weaker position, public support for military spending and collective self-defence would rise, fuelling an arms race in East Asia. We would, in short, be facing a situation similar to that in the 1930s, although this time China, Japan, and the US would be facing off against one another in the East China Sea and the Pacific, with the US leaning in favour of Japan.    

If China were to concede that Japan’s control of the Senkaku Islands is legitimate and withdraw its own claim, domestic suppression of that fact could only last so long before it leaks out via social media, leading to mass protests in cities and towns across the country. Public anger in China would be directed  towards the Japanese for their intransigence over the territorial issue (and past wrongs), and would also be directed at the CCP for surrendering China’s interests to outside pressure, not to mention the humiliation of doing so to Japan.  This state of affairs might convince members of the PLA that the CCP is not capable of defending China’s interests, and so they would act unilaterally, possibly provoking an incident with either the US or Japan as a show of “resolve.”  Such an act would place the CCP at odds with the military while at the same time confronting protests against its rule – a dangerous state of affairs for a one-party state and potentially destabilising for the country as a whole.

Given the inherent risks in making concessions, both sides have chosen to steadfastly insist on their position and have not yet shown any sign of compromise. This has had a detrimental effect on certain sections of the Japanese economy (namely the automobile trade), but has not escalated into calls for economic sanctions against China (indeed, trade talks have continued against a backdrop of political posturing over territory). As today marks the 10 year turnover of the CCP’s executive, once Xi Jinping has been installed as President/Chairman and attention is pulled away from the CCP’s internal power struggles, China may be more willing to discuss how to best resolve (or at least lessen) its dispute with Japan. It is by no means guaranteed, however given Xi Jinping’s “princeling” status and political influence, he appears more capable of discussing relations with Japan than either Hu Jintao or Wen Jiabao.  At any rate, the current state of affairs is merely making a tense situation worse, so the sooner both sides get talking the better.

*This post has been modified for greater clarity, and reflects to some degree arguments made by Stephen Harner here.