Developments Under the Abe Cabinet

Epilogue: Developments under the Abe Cabinet

Tomohito Shinoda

As a result of the LDP’s landslide victory in the general election, Shinzō Abe again became the prime minister on December 26, 2012. Abe formed his cabinet, which he named a “crisis-busting cabinet.” In his first cabinet in 2006, he appointed many of his close associates to cabinet and sub-cabinet positions. As a result, a series of scandals and controversial remarks by cabinet members provoked public outrage and weakened his cabinet. This time, Abe appointed competent LDP members to the key cabinet positions, including former prime minister Tarō Asō as both deputy prime minister and finance minister, Yoshihide Suga as chief cabinet secretary (CCS), and Akira Amari as economic minister. In his policy speech on January 22, 2013, Abe’s outlined the policies that the LDP members nurtured over their three years as an opposition party in the areas of both domestic and foreign policy. Among domestic policies, Abe’s highest priority was economic revival. Abe reinstated the Council Economic and Fiscal Policy (CEFP), which the DPJ gov- ernments had abolished, as a control tower for a broad range of economic policies. In addition, he established the Headquarters for Japan’s Economic Revitalization to specifically oversee the economic revival. Abe’s economic plan was soon labeled as “Abenomics” by the media. Abenomics consists of monetary easing policy, an expansive fiscal policy, and economic growth strat- egies to encourage private investment. At the first CEFP meeting on January 9, Prime Minister Abe declared to set a 2 percent inflation target and pressured the Bank of Japan (BOJ) to drastically ease the monetary policy to overcome chronic deflation and the strong yen which troubled many export-oriented corporations. Although BOJ Governor Masaaki Shirakawa was hesitant to set a numerical target for inflation, the BOJ finally released a joint statement with the government to “pursue monetary easing and aim to achieve the inflation target at the earliest possible time.” Even after the announcement of the joint statement, Prime Minister Abe kept pressuring the BOJ. For example, at the February 18 Diet meeting,

Source: Shinoda, Tomohito, “Epilogue: Developments Under the Abe Cabinet,” in Tomohito Shinoda, Contemporary Japanese Politics: Institutional Changes and Power Shifts, New York: Columbia University Press, 2013, pp. 230–235. Copyright © 2013 Columbia University Press. Reprinted with permission of the publisher.

Abe mentioned the possibility to proceed with revising the BOJ law if the central bank failed to comply with the government’s desire for more aggressive measures to fight against deflation. Under pressure from Abe, BOJ governor Shirakawa stepped down on March 19, almost three weeks before his five-year term was due to end. The market reacted positively to Abe’s economic initiatives. On March 8, the Nikkei Stock Average returned to the level of the fall 2008 pre-Lehman shock era as the yen weakened to over 95 yen per dollar, giving an advantage to many Japanese export-oriented industries. The appointment of a new BOJ governor was very important to recon- firm the government’s commitment to the inflation target. Abe’s pick for this key position was former MOF vice minister and Asian Development Bank President Haruhiko Kuroda, who had been a vocal critic of Shirakawa’s BOJ policies for reacting too slowly on anti-deflation measures. Kuroda met the qualifications suggested by Abe’s cabinet members and opposition parties, including experience of managing a large organization, strong English skills to communicate with the global community, and sharing Abe’s call for a bolder monetary stimulus. However, delicate political maneuvering was needed to achieve Diet approval for this major appointment. In 2008 under the Fukuda cabinet, the main opposition DPJ effectively blocked the appointment of former MOF officials to BOJ governorship by arguing that they might erode central bank independence. More controversial was Abe’s choice for BOJ deputy governor, Gakushūin University Professor Kikuo Iwata, who was seen as too radical by some law- makers. The parliamentary approval was seen as one of the biggest challenges in the current Diet session for Abe as the ruling coalition did not have a major- ity in the upper house. The DPJ, which held the most seats in the upper house, opposed Iwata’s appointment. However, in order to split the opposition block Abe strategically persuaded other opposition parties to support the Iwata appointment, including the Japan Restoration Party and Your Party. As a result, the appointment of Kuroda and Iwata as well as the promotion of BOJ Executive Director Hiroshi Nakaso to another deputy governor position was approved by the upper house on March 15. These appointments completed the lineup for promoting the Abenomics economic policies. During the Diet hearing, Kuroda expressed his determina- tion, saying “I will take whatever steps possible to pull the nation out of deflation.” The government and the central bank were expected to closely work together to end two decades of economic stagnation.