How Does Abe’s Resignation Change the Landscape of Japan’s Politics?

On the 28th August 2020, Shinzo Abe announced that he would be stepping down from the prime minister position due to personal health issues — ending the longest single term in the history of Japan, which lasted for almost eight years. Right after the announcement, the Nikkei 225 index fell by 1.41% as investors are now less certain about Japan’s future.

In this article, we will discover why Abe’s resignation is such a shock to the political landscape of Japan. To truly understand what is behind the scene, we will need to dive deep and explore the nature of Japan’s politics and what Abe did to make himself stood out from the other Japan prime minister.

An Overview of Modern Japanese Politics

Post-war Japanese politics has two major characteristics:

First, is the formation of the 1955 system (55年体制) which referred to the Liberal Democrat Party (LDP) domination over Japan’s parliament between 1955 and 1993. During this period, the LDP was able to control the parliament for 38 years straight as none of the opposition had the resource to challenge the LDP.

While this streak ended in 1993 after the reform in the election system to reduce the room for corruption and lower its barrier of entry, LDP remained as the most powerful party within Japan, only losing control of the parliament for the total of five years between 1993 and now.

However, what did not change in 1993 is the “revolving door of prime minister’s office”. Japan is notorious for frequently producing new prime ministers. According to Burrett (2016), since the 1947 constitution, Japan produced 32 Prime Ministers, among whom only five have spent four or more years in office. The situation was taken to the extreme between 2006 and 2012 where one prime minister was produced every single year.

The Rise and Fall of Abe

In 2006, Abe became the prime minister of Japan. As the youngest post-war Prime Minister, Abe enjoyed a high public approval rate. However, the honeymoon period was cut short when the LDP suffered a humiliating defeat in the Upper House which led to a decline in his popularity.

His overly conservative and nationalistic approach to policymaking also failed to capture the attention of the Japanese public as they believe that the economy was the higher priority issue. For example, his reform on the education system to promote ‘an attitude that respects tradition and culture and love of the national homeland that has fostered them’ and his goal to reform the constitutional failed to fulfil the expectations of his supporters and gave out an impression of a diehard nationalist.

Lastly, Abe’s first prime minster term was plagued with numerous political scandals, the most noticeable one being the pension scandal, to the point where Abe was unable to maintain a unified government and led to his first resignation.

Learning from his failure, Abe made drastic changes to both his leadership style and policy decision-making when he returned to power in 2012. Compare to his first term, he shifted his focus from nationalistic policy to economic policy, commonly referred to as ‘Abenomics’. Abe was able to stabilise Japan’s economy, which was struggling to recover from the 2009 financial crisis by adapting Quantitative Easing (commonly referred to as QE) and relaxed inflation target to 2%.

Abe’s policies reduced the cost of borrowing for business and individual and reduced the exchange rate of Japanese Yen, which in terms, made Japan’s export more competitive. As a result, Japan’s economic growth was able to recover to the pre-crisis level and the stock market had increased by 70% during the first two years of his second term.

Abe’s Resignation and the Future of the Yen

On the day Abe resigned, the Yen was actually strengthened as the USD/JPY fall from 106.7 to 106.21 despite the fall of the Nikkei index. One of the signature characteristics of Abenomics was its aggressive use of QE, which caused the Yen to drastically devalued since 2012.

With the resignation of Abe, investors feared that his successor might not continue his policies of devaluation, which led to the sudden drop in the USD/JPY. By the time this article is written, USD/JPY has already covered to the previous level. However, the future of the Yen will remain unclear until we know more about all of Abe’s potential successors.

Another factor worth paying attention to is whether or not Abe’s successor will be able to maintain his position within the LDP for a significant period. Some are worried that without Abe, Japan will reserve to the stage of producing one prime minister every year and unable to make any long-term economic decision. If such a situation occurred, it would be disastrous for both Japan’s economy and by extension, their currency.

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