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지난 9월 26일 일본의 새총리로 당선된 아베총리의 앞으로의 경제정책을 전망하는 자료입니다. 여기서는 다루지않은 주제인 정치노선 즉 고이즈미의 야스쿠니 신사참배를 동의하는 우경화에 가까운 정치노선을 펼 것으로 전망되는 아베총리는 경제정책 또한 정부개입을 어느 정도는 실현할 것으로 예상됩니다.

New Japanese Prime Minister Abe’s Economic Policy

By Koo Bon-Kwan

I. Koizumi’s Reform

Following his election as president of ruling Liberal Democratic Party (LDP) of Japan
for a three-year term, Shinzo Abe was elected on September 26, 2660 as the new
Japanese prime minister succeeding Junichiro Koizumi.

Abe’s election has been widely predicted, especially since Yasuo Fukuda, a former
chief cabinet secretary considered one of leading contenders to replace the outgoing
Koizumi, dropped out of the race in August 2006. Abe’s popularity rose four years ago
after he succeeded in pressing Pyongyang to release some Japanese citizens
kidnapped by North Korean agents during the Cold War.

Buoyed by Abe’s strong position, more than 60% of LDP members supported him in
late August, even before the conservative member of parliament had declared his
candidacy for the top LDP leadership post. Koizumi personally supported Abe, who
defended his pilgrimage to Yasukuni Shrine honoring Japan’s was dead including
Class A war criminals. Since Abe’s victory was all but certain, the party election was
at most a formality.

LDP’s politics has long been dominated by factional infighting(당파분쟁). Factional
leaders have traditionally colluded(결탁하다) among themselves to consolidate their
influence. Today, however, they find themselves in the strange position of no longer
having clout to back a strong candidate of their own. In 2001, party insiders settled on
Koizumi as LDP president over other political heavyweights. Against that background,
the rise of Abe confirms the trend amongst LDP members of picking somebody with
the highest popular rating in the polls.

Under Koizumi, Japan successfully pushed ahead with economic reforms and
deregulation, reducing bad loans at financial institutions, revising labor laws, and
privatizing public sectors including the postal office. In part due to these reform
initiatives, Japan’s economy began gradually recovering in February 2000 from more
than then years of recession. The current expansionary phase is expected to surpass
the cycle of 57-month-long Izanagi boom, the longest expansion in Japan’s postwar
history.

But the change in leadership raises a number of important questions. Will Prime
Minister Abe follow the reform path of his predecessor? How will he deal with the
widening income gap and worsening fiscal deficits, which have been the side effects
from Koizumi’s reform? How will the seemingly hawkish Abe handle Japan’s trade
and economic relations with the East Asian countries?

II. Economic Policy

While the Japanese media have primarily focused on Shinzo Abe’s security and
foreign policy preferences, he also shows potential in forming a new economic policy.

Abe’s economic policy essentially emphasize market fundamentalism and follows
Koizumi’s existing reform agenda. Abe’s publicized statement that there is no fiscal
recovery without economic growth echoes Koizumi’s slogan, “No growth without
reform.” Abe strongly believes that economic growth is the key component in reducing
Japan’s burgeoning fiscal deficits. It now remains to be seen if Japan’s economy can
grow by 3% a year in order to achieve this goal as he has agrued.

“Opening” and “innovation” are two of Abe’s key economic policy concepts.
The “opening” consists of three strategies: opening Japan’s domestic market through
free trade agreements (FTAs) and more economic partnership agreements (EPAs)
with East Asian countries, attracting more foreign direct investment, and continuing
efforts to deregulate the domestic economy. Abe insists that “opening” will catalyze
greater competition that will in turn, spur greater incentives to promote “innovation.”
His policy seeks to boost economic growth as a key driver in order to combat
ominous demographic trends including a declining birth rate and rapidly aging
population. In addition, Abe wants to boost Japan’s technological base including
greater use of information technology and robotic technology, and strengthen
intellectual property rights.

While many of his views overlap with those of Koizumi’s, there are still areas of
notable difference between the two. Abe believes that government intervention is
sometimes necessary when the market fails. In his campaign book
“Toward a Beautiful Nation” published in July 2006, Abe reasons that in a free-market
economy based on competition, there inevitably are winners and losers.
Losers, however, deserve new opportunities such as worker training in order to
ameliorate the effort of increased competition. He also stresses the importance of
public works projects, saying that excessive competition and emphasis on efficiency
can hurt Japan’s regional economy.

Given some aspects of Abe’s policies, Japan’s current reform drive may weaken.
If Abe sets his sights on winning the upper house elections slated for July 2007,
he would then likely seek to boost Japan’s regional economy, by strengthening social
safety nets and narrowing income gap in order to boost support for his party.
Abe’s leadership style is quite different from Koizumi’s in that he places cooperation
and interests ahead of personal ideology, while Koizumi draws a sharp line between
 friends and foes.

Even in spite of these factors, Japan’s economy could grow in lieu of greater
economic reforms. Certainly, Japan still has strong economic fundamentals such as
booming exports, strong private investment in plants and equipment, and private
consumption – which alone accounts for 87% of the GDP.

Moreover, Japan has already finished restructuring its corporate and financial sectors
and has successfully transformed itself from a government-directed economy to a
private sector-driven one. That means a slower reform will not significantly undermine
Japan’s economic growth potential.

III. Prospects

Monetary policy

Japan’s central bank during Koizumi’s rule maintained a zero interest rate policy and
an implicit “weak” Yen policy. Abe is likely to closely follow his monetary and foreign
exchange policy. Even before his selection as prime minister, Abe publicly supported
the zero interest rate policy. He wants neither higher interest rates nor extensive Yen
appreciation to negatively affect Japan’s economic growth prospects.
The Yen, however, is in a precarious position in between wide held market
expectations of a dollar drop that would force greater appreciation, and concern over
Japan’s economic recovery that would maintain the Yen’s current weaker position.

Economic cooperation

Under Koizumi’s leadership, Japan’s relations with other Asian countries worsened
while ties with the US noticeably strengthened. Some analysts worry that Japan
during Koizumi’s rule may have lost at least five years of goodwill with East Asia
because of his perceived shift to “rightist” policies.

Recently, Japan has also unsuccessfully tried to sign FTAs with East Asian countries.
Japan is still seeking to sign an FTA with South Korea as a means to increase regional
integration while also hedging against China’s economic and political rise.
Prospects for Japan’s FTA negotiation with the Association of Southeast Asian
Nations (ASEAN) are also quiet pessimistic. (The talks were first launched in April
2005 and are scheduled to end in February 2007.) In terms of regional FTA deals,
Japan’s current status is far beyond neighboring countries. China successfully
reached an FTA deal with ASEAN concerning goods and the agreement entered into
 force in July 2005. Similarly, South Korea signed an FTA agreement with ASEAN in
May 2006.

Abe, Japan’s first prime minister born after World War II, argues that Japan should
cooperate with East Asia so as to make up for its sluggish home market and boost
economic growth potential. In August 2006, Koizumi proposed to form a
Comprehensive Economic Partnership in East Asia which includes the 10 ASEAN
member close economic cooperation among member countries. Following Koizumi’s
example, Abe is expected to forge economic partnership. However, Tokyo would face
difficulties promoting economic integration due to its ever-growing tensions over
security and diplomatic issues.

Challenges

The new prime minister inherits three major challenges including swelling fiscal
deficits, delayed pension reform, and a widening income gap from his predecessor.
Trying to keep his government relatively small, Koizumi cut fiscal spending.
However, tax revenue also dropped, aggravating fiscal deficits. Abe expressed his
support for spending and tax cuts, but he will likely have no choice but to raise
consumption tax so as to deal with ballooning fiscal deficits. The Japanese
government is expected to consider a rise in consumption tax after upper house
elections end. As it takes time to legislated and enforce laws, Japan is likely to raise
consumption tax in 2009, at the earliest.

The new prime minister also has suggested a series of policies to deal with the
widening income gap. Instead of artificially trying to narrow the gap through
redistributive policies, the policies are set to give new opportunities to those
who lag behind in competition as well as unemployed youth, women, and elderly.
If Japan successfully implements these policies, it would then set a good model
for other countries to follow.