“We welcome the ruling party’s victory,” announced Hiromasa Yonekura, chairman of Sumitomo Chemical, and chairman of the Japan Business Federation, the country’s largest business lobby. He is one of the faces of Japan Inc. He’d just been handed a gift: the ruling coalition, in winning the Upper House election, now controls both houses of parliament, giving Prime Minister Shinzo Abe wiggle room to push Abenomics deep into the system.
Government deficits are already beyond control, and the accumulated debt, at an explosive 200% of GDP, is the highest in the developed world. Yet Abenomics includes cuts in corporate income taxes. But somebody has to pay more to fill the hole: consumers! So, Yonekura reminded the government that “steady hikes in the consumption tax are indispensable.”
This was echoed by Finance Minister Taro Aso. The national consumption tax of 5% is scheduled to be raised to 8% in April 2014, and to 10% in October 2015. The government would have to stick to the schedule, he told reporters. It would demonstrate to JGB buyers, the lifeblood of Japan’s crazy debt binge, that the government would eventually do something about the deficit and the debt, other than defaulting on it. Raising the consumption tax was a sign the government hadn’t completely abandoned any sense of responsibility. A delay would also violate the commitments Japan had made to the G-20 that it would be serious about fixing its fiscal fiasco, he said, though he used slicker verbiage.
And if extracting more money from consumers would end up hurting the economy, Aso added, the government could “consider a supplementary budget” – the Japanese term for periodic stimulus packages. They’re handed to Japan Inc. for a variety of smart projects, such as bridges to nowhere that end up adding, mathematically speaking, a few increments to GDP and a few more loads of manure on the reeking pile that is the national debt.
The strategy of Abenomics is no secret: extract more money from consumers via higher prices on consumer items and via higher consumption taxes on those items, an extraordinary double-whammy, then hand that money to Japan Inc. to fill its coffers and perhaps jiggle GDP a little. It will be called a “recovery.” An elegant and internationally approved form of wealth redistribution.
Yonekura wasn’t through. In addition to the “steady hikes in the consumption tax,” he wanted to see “a sustainable social security system.” So, consumers should expect higher contributions and lower benefits to prop up their teetering system. Needed? Certainly. On the principle of giving Japan Inc. and taking from consumers. That’s the promise of Abenomics. But Yonekura also wanted the government to accomplish something truly absurd, given reality: “maintain trust in the nation’s fiscal” position.
This perhaps explains the lack of enthusiasm among my Japanese acquaintances during the election and after the results became known. They were grousing about a dearth of appealing alternatives, which manifested itself in relatively low voter turnout. Frustration with Abenomics did cause a flurry of activity on the margins: the Japanese Communist Party won 8 of the 121 seats up for election. With its 3 uncontested seats, it now has 11 seats, its most dazzling win since 1998, after having campaigned by relentlessly criticizing Abenomics, the LDP, and its support for the nuclear industry.
Meanwhile, for the Bank of Japan, the election victory of Abenomics coincided with a nod from the G-20. The money-printing and bond-buying fury that BOJ Governor Haruhiko Kuroda has promised had come under attack by some members of the G-20, who’d wondered out loud if it wasn’t currency manipulation. Devaluing the yen to stimulate exports at the expense of other countries would be totally uncool, though doing the same to stimulate the domestic economy would be OK. And Kuroda has been on the defensive. But Saturday after the two-day G-20 meeting in Moscow, he claimed that he no longer felt any need to explain his policies; it seemed, everybody accepted the wisdom of his actions. He “felt such understanding has deepened even further.”
The imprimatur of the G-20 and control of both houses of parliament! The prime minister must have been on cloud nine. And so was Japan Inc.
“We welcome the fact that a stable political administration of at least three years will be secured,” announced Yasuchika Hasegawa, CEO of Takeda Pharmaceutical and Chairman of the Japan Association of Corporate Executives. He too reminded the government to work hard on implementing various elements of Abenomics, such as addressing economic growth (printing money, stirring up inflation, and creating asset bubbles), restoring fiscal health (raising the consumption tax), reforming social security (raising contributions and cutting benefits), and dealing with energy policies (returning the nuclear industry to its former omnipotent glory).
“We strongly hope the administration led by Mr. Abe will implement policies that will help (the steel industry) regain competitiveness,” said Hiroshi Tomono, President and COO of Nippon Steel & Sumitomo Metal Corp. and Chairman of the Japan Iron and Steel Federation. By “regain competitiveness,” he meant corporate tax cuts.
“We hope Prime Minister Abe will move ahead to resolve the problems that are still pending, both domestically and internationally,” said Tadashi Okamura, chairman of the Japan Chamber of Commerce and Industry and former Chairman of Toshiba Corporation, in a press release. He did have a word of warning: the government would need to “make all-out efforts to realize an economic recovery that reaches a broader level of small and mid-sized companies and local regions.”
In early January 2013, all three of them – Tadashi Okamura, Hiromasa Yonekura, and Yasuchika Hasegawa – were shaking hands for a dour and corny photo taken during a news conference after a New Year’s party for Japan Inc., to celebrate the government’s announcement of a ¥12 trillion ($120 billion) deficit-funded stimulus package, a huge handout to Japan Inc., borrowed from the future. All three should have been smiling thankfully, not just one of them!
Be that as it may, Prime Minister Abe and his LDP did win both the upper and lower house elections. Japanese voters, even those who didn’t vote, can’t complain afterwards about what they themselves have wrought. That’s the benefit (or drawback) of “legitimate” elections. And what they have wrought is Abenomics. It addresses Japan’s most explosive problem, its national debt, by adding more debt even more rapidly. It extracts more money from consumers and workers via higher consumption taxes, higher prices on consumer goods, higher contributions to the welfare-state programs, and fewer benefits. And simultaneously, it hands the remaining crown jewels to Japan Inc. That’s more than a subtle shift for an extraordinary corporate and individual welfare state that no one has ever paid for.