Japan's longest-serving prime minister, Shinzo Abe, is stepping down. It's a sad end to his strong leadership, with his dreams of a revived Japan only partially realized. Abe blames poor health, a resurgence in the ulcerative colitis that forced him from office in 2007, at the end of his scandal-plagued first term.
The condition leaves Abe with ulcers in his digestive tract. It's something he has fought to control since he was 15, but he said today that doctors detected a relapse of the disease in June. The stress of leading the world's third-largest economy through the Covid-19 pandemic and its worst downturn in modern history cannot have helped.
I like Abe, and I like what he was trying to accomplish. He has instilled some much-needed stability and political backbone, which has spilled over to greater confidence among companies and consumers. Japan Inc. has finally had enough belief in the future to plan a little capital expenditure, and look to expand, even if wage gains have been hard to produce.
But Abe leaves with his popularity beaten down by the country's stop-start response to the coronavirus. The resultant economic downturn has undone the gains produced by his intensive economic reforms. Abe will not even get to preside over the Olympic Games that Tokyo won less than a year after he came to power in December 2012.
The Japanese newspapers have been diligently tracking Abe's recent visits to the doctor, with two lengthy trips in just over one week, leading to speculation he might step down. But the timing is still a shock, particularly since his staff have all this week been insisting he's good to continue. Abe has only 13 months before his term ends, so it seemed likely he would see that out.
"Even though I have 1 year to go in my tenure, and with other challenges that have not been addressed yet, and amid the coronavirus outbreak, I decided to step down as prime minister," Abe said in unscripted comments, blinking back tears. "I would like to send my apologies to the people of Japan." He says he'll try a promising new treatment for the disease, which has sapped his strength.
Japanese stocks immediately slipped as soon as Abe confirmed his departure, with the broad Topix of all the main-board stocks dropping 2.5%. The index rallied by the close to leave it down only 0.7%, which leaves Japanese stocks nursing a 6.8% loss so far this year.
Like most markets, Japanese stocks have had a strong run since their lows in mid-March. But the progress has been impeded by the resurgence in Covid-19 cases in Japan, which is not legally able to implement a true lockdown but has "suggested" at times that people stay home. Schools opened, closed, and reopened again. After Japan brought a first wave under control in April, the disease reemerged with a vengeance in July. It has to date seen a total 66,493 cases, and 1,246 deaths. Abe was hesitant and kept a low profile in his early response.
Abe's stock has sunk with the country's fortunes. Japan just 10 days ago reported its worst-ever economic quarter. Gross domestic product contracted 7.8% in the June quarter, from the previous three months, the worst figures since the current record keeping began in 1980. It also produced an annualized decline of 27.8%.
This is the month when the Tokyo 2020 Olympics were due to come to their crescendo. The games were originally due to run from July 24 through August 9, and are now slated to occur 364 days later in 2021. Even that is in doubt.
The long decades of deflation after the 1980s bubble burst in Japan left companies hoarding cash. Likewise, it made little sense for consumers to spend on big-ticket items if they'd be cheaper in the future. Few people visiting Japan would recognize it as being economically depressed, but it veered in and out of recession. Poorer provinces such as Okinawa in the very south and Hokkaido in the very north have struggled, even if the industrial heartland fared well.
Japan is used to having a revolving door for its top post. Prior to Abe's second time in office, it was uncommon for any leader to last past 9 to 12 months in office. There were indeed six prime ministers in the six years before Abe took power in December 2012.
Abe had been in and out of the door, too. He first became prime minister in September 2006, but lasted, yes, exactly 1 year and 1 day in the post. He stepped down amid a raft of scandals among his ministers, but blaming his bowel disease.
Before Abe, you have to go back to the reform-minded curly-haired maverick Junichiro Koizumi - whose son is now a rising political star - to find a Japanese leader who had time to warm the seat, in a five year spell that ended when Abe stepped in.
On taking office in 2012 for his second stint, Abe swiftly introduced "Abenomics," a platform of economic reforms that depended on a flight of three arrows: the first arrow of easy monetary policy, the second of extensive fiscal spending by the government, and the third of growth with structural reform.
The first two have been relatively easy to launch into flight, even to hit their target. The third is tough to master, but Abe has succeeded in pushing improvements in corporate governance, has raised the topic of Japan re-establishing a military (which requires a constitutional change), has promoted female participation in the workforce, and has at least touched "third-rail" issues such as immigration, resulting in a small number of work visas in select industries.
Abe was an unlikely "revolutionary," though in hidebound Japan his ideas were new. He is from political nobility, with a former Japanese foreign minister for a father, and grandson on his mother's side of a prime minister. But a strong mandate and a thoroughly unorganized opposition gave him the base from which to launch his reforms.
He leaves behind his long-serving central banker, Bank of Japan Governor Haruhiko Kuroda, who will maintain the country's super-loose monetary policy, which has resulted in short-term interest rates that are negative, at -0.1%. The BOJ has also committed to buying the necessary amount of Japanese government bonds to ensure the 10-year JGB yield remains around 0%.
It is not however clear who will succeed Abe, who had not publicly groomed a successor. He had in 2019 "broken the record" for most days as prime minister, between his two times in office. But on Monday, he was confirmed to have the longest single consecutive tenure as well.
The chief candidates to replace him are the current Chief Cabinet Secretary Yoshihide Suga, Abe's main adviser, who is popular with the public; former foreign affairs minister Fumio Kishida, who is currently the policy chief of Abe's conservative Liberal Democratic Party, who has support inside the LDP but not necessarily with voters; and Abe's main rival, Shigeru Ishiba, whom Abe defeated in 2012 to become LDP leader and therefore prime minister. Ishiba is currently Secretary General of the LDP.
There's sure to be a political dogfight behind closed doors within the ruling party to see who comes out on top. The LDP will likely appoint an interim leader to serve until the party can hold a leadership election. Current deputy prime minister Taro Aso, who is also current Finance Minister and a former prime minister himself, would make sense, and may even seek an Abe-like second spell in office.