Has Japanese society changed?, One year after Abe's death, domestic affairs, diplomacy, and society

Introduction: Abe's influence on Japan's economy, diplomacy, and internal affairs is ubiquitous.

Author | First Finance and Economics Pan Yinru

Although former Japanese Prime Minister Shinzo Abe passed away unexpectedly, his influence is still lingering in Japan's current economic diplomacy.

July 8th is the first anniversary of Shinzo Abe's assassination, and a commemorative ceremony was held in Tokyo, Japan. Abe's widow Akie Abe, Japanese Prime Minister Fumio Kishida, and key members of the ruling Liberal Democratic Party attended the memorial ceremony.

As the longest serving Prime Minister in post-war Japan, Abe has left behind numerous political legacies. In terms of economy, he launched "Abenomics" named after him, attempting to promote growth in the Japanese economy through monetary easing, fiscal stimulus, and structural reforms; In diplomacy, Abe proposed the concept of a "free and open Indo Pacific", which established Japan's global strategy for the next decade or even longer; In terms of security, Abe is pushing for constitutional amendments and strengthening the Japan US alliance.

Recently, during a speech in Shanghai, Chief Economist of the Japan Economic Research Center, Ishikawa Yoshimoto, mentioned that the Kishida Cabinet has generally inherited Abe's line in domestic and foreign affairs, and is named "New Era Realistic Diplomacy", which involves climate issues, national life safety, and other aspects. "His diplomacy is generally more active than domestic affairs.".

Can the booming Japanese stock market drive economic recovery?

The Japanese stock market is the most eye-catching market globally this year. Both the Nikkei Index and the Tokyo Composite Index have recorded a 30% increase compared to the beginning of the year, and this increase is continuing into the second half of 2023. Since 1990, the Nikkei index has been declining from its historical high of 40000 points until reaching a bottom near 7000 points in 2009. But since 2012, Japan's nominal gross domestic product has returned to the growth track. As of the past decade in 2021, the cumulative return on the Japanese stock market has reached 174%, and Abenomics has played an indispensable role in boosting the Japanese stock market.

As is well known, "Abenomics" includes bold monetary policy, flexible fiscal policy, and a growth strategy to promote private investment, known as the "three arrows". The Abe administration at the time hoped to drive Japan's economy to rebound and escape deflation through loose monetary policy and the depreciation of the Japanese yen exchange rate.

Since Abe took office again in 2012 and put forward a series of economic stimulus policies the following year, the Nikkei stock index has risen all the way from about 10000 points at that time. In October 2018, it broke through 24270 points, hitting a new high after Japan's economic foam burst. Even after the outbreak of the COVID-19, the Japanese stock market fell sharply, but it still recovered quickly afterwards.

On July 8th last year, when news of Abe's attack spread, Japanese Nikkei 225 futures quickly fell to a low of 26400 yen, more than 400 yen lower than the early closing price of the Nikkei 225 index, and the yen rose against the US dollar in the short term. The last time the Nikkei 225 index fell due to Abe was on August 28, 2020, when Abe announced his resignation as Prime Minister of Japan due to health reasons. At that time, the Nikkei 225 index plummeted in the short term, dropping more than 2.5% at one point.

After Abe's death, the outside world once watched whether the Bank of Japan's ultra loose policy would change. The Chief Economist of the Oxford Institute of Economics, Shigeru Nagai, told First Financial that despite unexpected economic data, the Bank of Japan will maintain the current situation for the next year or so to assess whether the economy is expected to achieve the 2% inflation target during Governor Yoshida's five-year term. "In his first speech as governor, Yoshida emphasized the risk management methods in policy-making and the high cost of premature tightening." At the same time, he emphasized that in the coming year, the Bank of Japan will conduct a "comprehensive review" of monetary policy, with a focus on quantitative easing and YCC policies. "Evaluating in an open manner will help the Bank of Japan judge when it is the best time to change its policy of easing, but at least not now.".

Entering 2023, the Nikkei Index returned to a high of 30000 points after more than 30 years. In response, Kohei Morita, Chief Economist of Nomura Securities, the largest securities firm in Japan, wrote in the latest report that the recovery of the stock market is not only due to the super loose policy previously promoted by Abe, but also because the market sees "the prospect of a true awakening of the Japanese economy and enterprises.".

He believes that the Japanese economy is currently facing a dual structural change represented by demographic factors and market pressure, and there are five signs of economic recovery: long-term wage increases; Reassignment of labor force; Pursuing a business strategy that maximizes human efficiency; More efficient use of manpower, capital, and land; A more flexible and efficient capital market.

Inheriting Abe's Line in Domestic and Diplomatic Affairs

Compared to the hot stock market, after Abe's death, Kishida was left with a political situation of "internal and external difficulties". The first to bear the brunt is the chaos in Japanese politics exposed by Abe's assassination attempt. Subsequently, several ministers of the Kishida cabinet resigned due to the exposed chaos and scandal, which also led to a rapid decline in Kishida's approval rating. Entering 2023, Kishida has increased his efforts in the diplomatic field, such as through frequent visits and the G7 summit that he personally values, to boost sluggish popularity and focus global attention on Japan.

After experiencing the "shining moment" of the G7 summit, according to Japanese media reports, Kishida is now more committed to "fighting diplomacy". After the closure of Japan's current parliament in late June, Kishida's diplomatic agenda was also packed, such as attending the NATO summit held in Lithuania from July 11th to 12th. Afterwards, he will visit the Middle East and also plan to attend the expected Japan US South Korea summit in the United States. On June 8th, Kishida stated in the Senate Finance and Economics Committee that he will strive to achieve the Japan North Korea summit as soon as possible.

Regarding the internal and foreign affairs of the Kishida government, Ijikun believes that "the Kishida regime has revised and strengthened its policies in terms of national security strategy and economic security strategy."

Regarding the cooperation between China and Japan, Ijiyuandun told First Financial that "healthy competition is beneficial, but in a period of historical transition full of risks, as a part of risk management, it is also necessary to maintain relations between countries and avoid vicious competition. At the same time, misunderstandings need to be communicated at different levels to complete risk management and avoid decoupling." He said, "For Japan, how to maintain relations with its allies and develop relations with China at the same time is currently the biggest problem. Only by balancing both sides can it be considered a healthier diplomatic relationship. In today's era of close ties between countries, if we act too hastily and unilaterally promote domestic measures and actions, it may lead to countermeasures." As a result, the relationship between countries becomes rigid and mutual suspicion arises, leading to a security dilemma

According to Japanese media reports, Kishida mentioned in a speech at Waseda University on June 18th that the diplomatic focus for the second half of the year will be on China, and therefore hopes to visit China.

At the same time, all parties are currently paying attention to whether Kishida will choose to dissolve the parliament and hold early elections this autumn after missing the high point brought by the G7 summit. The latest poll conducted by Japanese media in early July showed that the support rate for the Kishida cabinet was 38%, a decrease of 5 percentage points from the previous month; The disapproval rate is 41%, an increase of 4 percentage points from last month.