Political stability at least in terms of the tenure of Prime Ministers has not always been associated with Japan. But Prime Minister Shinzo Abe has changed this with his third consecutive election victory.
In Upper House elections held in Japan on July 10, Prime Minister Abe’s ruling Liberal Democratic Party (LDP) achieved a sweeping victory. Counting coalition supporters and independents, he now has a two thirds majority in both houses of the Japanese parliament (Diet), a so-called “super majority”.
Japan’s political and social position is in stark contrast to the political turmoil and uncertainty associated with BREXIT, stagnant economies and serious terrorism in Europe; and increased violence on the streets and an extraordinary six months of vitriolic Presidential primaries in the US.
Obtaining a “super majority” greatly strengthens Prime Minister Abe’s political standing and this is anticipated to be directed at further, fundamental structural reform measures – the third arrow of Abenomics. While some progress has been made – including in the areas of corporate governance and energy deregulation and in increasing both the number of women in the workforce and the number of women in senior corporate positions (where they are currently dismally represented) – further serious reform is necessary.
Prime Minister Abe has foreshadowed that a substantial package of additional fiscal measures to further support the economy will be completed by the end of July. This package is likely to be introduced into a special September session of the Diet. Not that the economy is the basket case it is sometimes presented as by commentators outside of Japan. Growth in the first quarter of this year was 0.4 % with a real GDP growth rate of 0.9% forecast for FY2016. Unemployment has continued to fall to 3.2 %, although the proportion of part time and short term contract work (which usually means substantially lower salaries) continues to climb.
But with a rapidly declining population and no feasible prospects for long term immigration, Japan needs to use all available measures to bolster productivity and growth so that it can reduce, over time, its mountainous national debt.
The “super majority” does also provide the opportunity for Prime Minister Abe to pursue constitutional change through the Diet, enabling Japan to adopt a more direct and assertive approach to the use of its very significant military assets. However, the Prime Minister has made it clear that he intends to give priority to the economy, and the majority of the population remain to be convinced of the case for constitutional changes which will need to be put to the people at a referendum even if passed by the Diet.
Of course, Japan’s political and social stability is good news, not just for the increasing number of Australian tourists visiting a Japan which is seen as safe, steady and welcoming, but more broadly for our strategic and economic relationship.
The extent to which an understated Japan flies under the radar is shown in the reaction – or lack thereof – to Japanese Foreign Direct Investment (FDI). In 2015, FDI inflows from Japan to Australia of a reported $14.1 billion exceeded those even from the United States (which were around $10 billion), were well ahead of traditional European source countries and were also more than four times those from China. And this is not just a ‘“one off’ “situation. While the United States has by far the largest stock of FDI in Australia, as a result of increased inflows in recent years, Japan has now replaced the UK as the source of our second largest FDI stock.
As important as the aggregate FDI inflows from Japan are, even more interesting and valuable is its increasing diversification into services including insurance, logistics, construction, retailing, apartments and restaurants where Japan now has a major presence. Indeed, through involvement in infrastructure such as urban light rail, together with high end apartments, quality retailing (e.g. Uniqlo) and restaurants, Japan is quietly having a substantial, positive impact on our future urban lifestyle – and will be certainly looking for further opportunities.
Japan’s huge external economy (Japan has been the world’s largest creditor nation for more than 20 years) located in Asia, Africa and South America is not just critical for Japan but also provides valuable linkages and growth opportunities for Australian exporters and offshore investors.
Given Japan’s rapidly ageing population and mature economy, Australia’s affluent and, importantly, growing population will continue to mark us as an important investment destination.