Katsuya Okada (right), leader of the Democratic Party of Japan, the main opposition party, calls for the protection of the Japanese Constitution while attending a debate in Tokyo on June 21 on key political and economic issues ahead of the upper house election(XINHUA) 

Compared to the hot weather of summer, the upcoming parliamentary election in Japan's upper house [on July 10] seems coolly contested. Only 389 candidates will fight for 121 seats, 44 participants fewer than in the last such election in 2013. A Japanese media survey showed only 29 percent of voters are sincerely concerned over the upcoming election. Nevertheless, this election could prove significant for the future of both Japan and Northeast Asia.

Failed Abenomics 

There are usually multiple reasons behind voter indifference, however much of the apathy this time may stem from the disillusionment that many voters feel.

Japan's ruling Liberal Democratic Party (LDP) intends to draw on experience from the previous election by shifting voters' attention toward economic issues. However, considering Japan's current economic troubles, many voters have been left disillusioned. The nation has been suffering a prolonged economic stagnation that has lasted over a quarter of a century. Despite maintaining slow growth in recent years, it still has yet to discover a solution, while the country's income persists in falling short of government expenditure. The conundrum of how to fix Japan's economy has been a perennial burden on the government.

After LDP President Shinzo Abe resumed power as the Japanese prime minister in 2012, he advocated a package of economic policies based on the "three arrows" of monetary expansion, expansive fiscal stimulus, and structural reforms to increase private investment. Known as "Abenomics," the first two measures are represented by excessive quantitative easing (QE) and a substantial increase in consumption tax.

These policies are not new; QE has long been a tool adopted by successive Japanese governments to relieve the economy since the economic downturn. At first, the tactic was mostly employed to ease the debt crisis which resulted from the collapse of Japan's asset price bubble in the early 1990s and to prevent bankruptcy among Japanese banks. A similar policy was adopted by the United States in response to the 2008 financial crisis.

However, this time, Abe resorted to QE to create moderate inflation and stimulate domestic spending, while another policy objective is to depress the yen to bolster Japanese exports. The U.S. Federal Reserve's withdrawal from QE in 2014 has encouraged this, with the exchange rate falling from 80 yen to the U.S. dollar to 125 yen per greenback. Though depreciation has boosted Japanese exports, its overall impact on the Japanese economy has been limited. Japan's central bank even experimented with negative interest rates in an attempt to reach Abe's economic growth target, but to no avail.

Abe's first arrow has clearly missed the target. The major cause of this is that he failed to recognize changes in Japan's economy and employed tactics used 20 years ago to solve contemporary problems. Japan was previously a nation of savers and, despite the collapse of the bubble economy, a large amount of private savings still existed and supported families for more than 10 years until the economic upturn. However, the wealth gap in today's Japan has widened, and in spite of the growth in aggregate savings, many Japanese working families have very little or no savings. Of all families, the proportion with zero savings has increased to 30.9 percent in 2016 from 26 percent in 2012, as inflation and rising costs have ramped up pressure on consumers. Thus, stimulating consumption through inflation can shift wealth from the poor to the rich.

Meanwhile, an even more pressing issue is that Abe's economic policies favor large enterprises, which rarely convert greater profits into better wages for employees. Therefore, QE helps entrepreneurs and property owners, but harms middle- and low-income earners. Additionally, policies designed to stimulate the economy have yielded no long-term benefits, as achieving lifetime employment becomes ever more elusive. In 2015, the proportion of Japan's contract or part-time employees within the workforce rose to 37.5 percent, 2.3 percentage points higher than when Abe took power.

A construction site in Tokyo on February 16, 2015 (XINHUA/AFP) 

In the long run, Japan faces the monumental challenge of overcoming population decline. According to Japan's statistical bureau, the birth rate in Japan in 2015 was 0.79 percent, while the mortality rate was 1.02 percent. It was the first time Japan registered a population decline since 1920, when the demographic census was first carried out. Data released on May 1 showed the country's population had fallen 150,000 in the past six months, underlining the declining trend. To counter this, Japan needs to greatly increase its labor productivity, yet Abe's third arrow, focusing on structural reform and private investment to stimulate productivity, has shown no signs of success. On the contrary, Abe promoted a general policy for turning Japan into a society "where 100 million people can be active," despite a national population below 127 million in which more than a quarter are over 65. Achieving Abe's goal would require mobilizing many retired workers and is unrealistic.

Another failed approach to economic stimulus is the proposed increase in consumption tax. Abe has violated his previous campaign promise to hike consumption tax, once more delaying the policy due to weak demand and strong protest from consumers.

Constitutional reform? 

A core issue in this parliamentary election is whether the result will allow Abe to rewrite the Japanese pacifist Constitution. The LDP-led coalition has more than the required two thirds of seats in Japan's lower chamber, Abe hopes his ruling coalition can also guarantee the two thirds of seats needed in the upper chamber to embark on constitutional change.

The prime minister's campaign has purposefully drawn attention away from constitutional rewriting despite Abe announcing that his administration would push for this if they achieved the sufficient numbers. The mass protest that met the launch of Abe's new security bills last year served as a warning of the unpopularity he may face if he focuses too much on the constitutional issue.

A plausible path for Abe to win the election is to draw people's attention to an overstatement of the benefits of his economic policy. In spite of Abenomics being widely regarded as a failure, no one is ready to come up with a new recipe for Japan's prolonged economic sluggishness. The prime minister might also hope debate on economic issues can drown out the voices opposed to constitutional amendment.

The upcoming election is widely considered as a public poll on Japan's constitutional revisionist approach. Currently, polls show more oppose revision than support it, though the election outcome is still uncertain. Whichever way the result falls, it will not only shape Japan's future, but is also likely to have a big impact on the regional situation in Northeast Asia.

The author is an associate researcher with China Institute of International Studies 

Copyedited by Dominic James Madar

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