Global Economics & Markets Research Email: [email protected] URL: www.uob.com.sg/research Macro Note Japan: Rising Political Risks For PM Abe
Thursday, 15 March 2018 Geo-political risk overseas has become a key downside risk to Japan’s trade outlook following US President Trump’s imposition of trade tariffs on steel and aluminum imports. While Japan has largely kept silent on this matter for now. Further widening of tariffs will increase the risk of trade war, that will negatively impact global trade and Japanese exports, Alvin Liew and the Japanese government may not keep its silence any more. Senior Economist [email protected] But the bigger threat to Japan’s political stability is the brewing scandal of a controversial government land sale deal to an elementary school operator (which first surfaced in Feb 2017) that Japan PM Shinzo Abe and Fin Min Taro Aso are currently embroiled in.
Some key details surrounding this scandal (Source: Bloomberg):
• Asahi newspaper first reported on 9 Feb 2017 that Moritomo Gakuen -- an educational foundation known for its nationalist leanings -- had bought government land in Osaka for a fraction of the price of comparable plots in 2016. • The head of Moritomo, Yasumori Kagoike (Mar 2017) told Japanese lawmakers he received a JPY1mn cash donation from PM Abe via his wife Akie Abe, which was strongly denied by Abe and his government. • Fin Min Aso said (24 Mar 2017) the said land sale was carried out with proper procedures and pricing. • Kagoike and his wife were subsequently arrested for fraud. (31 Jul 2017) • Asahi newspaper reported on 2 Mar 2018 the finance ministry may have altered the documents related to the land sale. • On 9 Mar (2018), a regional Finance Ministry official from the section overseeing the land sale was found dead in apparent suicide; later that day, National Tax Agency chief, Nobuhisa Sagawa, who was the official in charge of the land deal, resigned later that day. • On 12 Mar (2018), officials from Finance ministry acknowledged in a parliamentary hearing that documents related to the 2016 sale of state land to school operator Moritomo Gakuen in Osaka were altered. Changes included deleting a reference to Akie Abe having recommended the land deal, a phrase calling the land deal “exceptional,” and the names of several other influential lawmakers who were implicated but have denied involvement.
As is widely expected, the popularity of Abe and his administration has taken a hit since the re-emergence of the land sale scandal. And while Fin Min Aso admitted to the missteps that took place in the Finance ministry under his charge, he denied that there was any political pressure behind it and has come out against speculation he will resign. PM Abe also said Aso will not step down.
And while our base case is for both Abe and Aso to survive this crisis (just like in 2017), any further policy missteps or subsequent admission of wrongdoing leading to their resignations would likely re-ignite political uncertainty for Japan and at the very least, Japan will need a new name to replace “Abenomics”.
Disclaimer: This analysis is based on information available to the public. Although the information contained herein is believed to be reliable, UOB Group makes no representation as to the accuracy or completeness. Also, opinions and predictions contained herein reflect our opinion as of date of the analysis and are subject to change without notice. UOB Group may have positions in, and may effect transactions in, currencies and financial products mentioned herein. Prior to entering into any proposed transaction, without reliance upon UOB Group or its affiliates, the reader should determine, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences, of the transaction and that the reader is able to assume these risks. This document and its contents are proprietary information and products of UOB Group and may not be reproduced or otherwise. Singapore Company Reg No. 193500026Z