This is no Obama moment. That’s how Robert Ryan, a currency strategist at BNP Paribas SA, summed up this week’s election triumph by Japanese opposition leader Yukio Hatoyama.
It’s not about spoiling celebrations over ending the Liberal Democratic Party’s (LDP) half-century of almost uninterrupted rule. It’s just that pundits are comparing Hatoyama with US President Barack Obama and wondering if Japan is experiencing change it can believe in. Let’s not get ahead of ourselves.
The Democratic Party of Japan’s (DPJ) victory is a big deal. The proverbial genie is out of the bottle, and politicians will never be able to return to their old ways of ignoring constituents. In a sense, democracy in Japan is no longer a concept, but a reality.
Now the hard part begins. Hatoyama should keep in mind that his party didn’t win this election, so much as the LDP lost. Any party that turned to the hapless Taro Aso to slow its demise was doomed, regardless of what the opposition did. Now, the prime minister-in-waiting must rally his disparate troops around some of the most daunting problems in modern economics.
It won’t be easy, as the DPJ is an amalgam of political refugees from other parties with divergent ideologies. Hatoyama’s bigger test will be ending Japan’s economic inertia. Numerous challenges are coming to a head as the 62-year-old Stanford University PhD takes the reins. It would be more comforting if Hatoyama had articulated a vision, Obama-style.
Love Obama or not, the man detailed a directional shift for the US and is trying to implement it. Hatoyama’s party has been maddeningly vague about what it wants to do, how it plans to do it and how it will pay for any policy shifts.
Will new leadership change Japan? Chats with Japanese investors, businesspeople, colleagues and neighbours tell me no one really knows what to expect. So rather than hazard pointless predictions, here is a look at Hatoyama’s to-do list.
• Boost the economy: That won’t be easy with the $14.2 trillion (Rs697.2 trillion) US economy in recession. China’s 7.9% growth helps, yet Japan needs bigger growth engines as deflation returns. Borrowing more will be difficult with public debt almost twice the size of the economy. And interest rates are already near zero. The DPJ must think creatively about how to get more growth out of existing spending
• Strengthen the safety social net: This really is the key to getting Japan’s aggressive savers to consume more. Hatoyama wants to invest more in households than companies, more on education than new roads and bridges and more on working mothers than inefficient industries
• Raise competitiveness: The only way Japan can maintain its high standard of living is to get more work out of existing workers, innovating and empowering entrepreneurs to create new companies and fresh jobs. Tax shifts and a review of corporate start-up policies to encourage this shift could pay dividends
• Prepare for an ageing population: Japan has long had a steady supply of young, well-educated workers to replace retiring ones. The labour force is taking on a lopsided quality, and the hit to government tax receipts will be extreme. The DPJ may be forced to tweak third-rail issues: raising the retirement age, cutting pension benefits and increasing immigration
• Increase the birth rate: Environmentalists have a point when they say shrinking populations are good for the planet. They can be disastrous economically. The DPJ must invest more in affordable child care and education. As distasteful as it may sound, offering families cash bonuses to procreate is worth considering
• Heal wounds in Asia: The DPJ has such an incredible opportunity to pull the centre of Japan’s diplomatic power away from Washington. Yes, the US-Japan relationship is vital and Hatoyama is more likely to maintain it than meddle with it. Japan also needs to confirm its position in the fastest growing economic region. It’s time to put World War II firmly behind Japan and allow it to play a bigger role in its own neighbourhood. Job-creating trade deals will follow
• Rebalance the economy: The LDP dragged its feet on reducing Japan’s reliance on exports for many a decade. That won’t be an option for Hatoyama. The key is to give Japanese people some confidence in the future so they can spend more, and to narrow the gap between rich and poor. Part of the issue is finding a better use for Japan’s almost $1 trillion of currency reserves. The DPJ would be wise to move Japan beyond its obsession with a weak yen
• Be bold: If Obama worries me as an American, it’s that he hasn’t been radical enough in changing an economic system badly in need of it. Hatoyama should understand the unique mandate with which he has been presented and wrestle power from the bureaucrats who avoid change at all cost
Otherwise, the same tired LDP leaders Hatoyama just pushed from power will be back in a few years—and Japan none the richer for it. It’s a fate he may share with Obama if both don’t become more audacious.
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