Abe's abrupt exit puts Indo-Pacific strategy and economy at risk

Aug 29, 2020 | News On Japan

Aug 29, 2020 (Nikkei) - With the announcement of his resignation, Japanese Prime Minister Shinzo Abe became the first leader of a major economy to step down amid the coronavirus pandemic. The Nikkei Stock Average's 2.6% plunge that followed reflects international concern over the risks that may lie ahead for the nation's politics, security and economy.

When word of Abe's resignation arrived just after 2 p.m. on Friday, every staffer at the Finance Ministry's Administration and Legal Division, which handles dealings with the Diet, rose to their feet.

"We don't know what will happen," a grim-faced senior official said. "We have no choice but to hold our breaths and wait."

Japan's most powerful ministry is running full steam ahead toward the September-end deadline for drafting the fiscal 2021 budget. On everyone's mind was how the new cabinet and the choice of top ruling party officials will affect the process.

The pandemic-pummeled economy looks increasingly reliant on loose monetary policy and fiscal spending, the first two of Abenomics' so-called three arrows. The third -- structural reform -- failed to develop into the centerpiece it was meant to be.

U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe visit the JS Kaga helicopter carrier in Yokosuka, Japan, in May 2019.

The half-decade economic recovery that began on his watch ended in 2018. And while the Nikkei average temporarily climbed to above 24,000 this year from the 10,230 where it had languished when Abe became prime minister for a second time in 2012, April-June gross domestic product shrank a real annualized 27.8% -- the worst on record in data going back to 1955.

The government is ramping up spending, paid for with new debt being bought up by the Bank of Japan.

Regulatory reform has been slow, and such traditional labor practices as lifetime employment remain firmly entrenched, making it tougher to shift talent into promising new fields. An aging society and a shrinking birthrate continue to chip away at the workforce.

The Cabinet Office estimates that Japan's potential growth rate remains below 1%.

Analysts agree that the Abe government's longevity gave the prime minister clout both at home and abroad.

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