Spotlight on Japan: Return of 'Abenomics', More Militarism, Tougher China Line; Outlook for Yen and Nikkei

The Japanese election hands former prime minister Shinzo Abe a chance for redemption according to The Guardian.

Japan's voters appear to have short memories. Shinzo Abe, who is assured of becoming prime minister after his party's resounding victory in Sunday's election, last led the country in 2006, but stepped down after a troubled year in office.

The official reason given for his abrupt resignation was a chronic bowel ailment, which the leader, 58, says he now controls with a new drug. But his health condition may have been a cover. Abe's first administration was marred by scandals and gaffes. Months before he quit, his Liberal Democratic party [LDP] suffered a heavy defeat in upper house elections.

Sunday's resounding election victory has given him one last shot at redemption, as only the second Japanese politician to serve twice as prime minister since the war.

Behind Abe's soft-spoken manner and aristocratic background lurks a fervent nationalist, which led one liberal commentator to describe him as "the most dangerous politician in Japan".

Abe has often said he went into politics to help Japan "escape the postwar regime" and throw off the shackles of wartime guilt. In its place he has talked of creating a "beautiful Japan" defended by a strong military and guided by a new sense of national pride.

Abe's biggest ideological influence was his maternal grandfather, Nobusuke Kishi, who was arrested, but never charged, for alleged war crimes. He went on to become prime minister in the late 1950s.

Decades later, confronted with an aggressive China and nuclear-armed North Korea, Abe is eager to fulfil his grandfather's dream of giving Japan's military the teeth he believes it has been denied by the country's postwar pacifism.

More Militarism, Preposterous Denial

The BBC reports Shinzo Abe vows tough China line

The BBC's Rupert Wingfield-Hayes says that as many predicted, Japan has taken a sharp turn to the right.

Mr Noda lost over his move to double sales tax, something he said was necessary to tackle Japan's massive debt.

By contrast, Mr Abe has promised more public spending, looser monetary policy, and to allow nuclear energy a role to play in resource-poor Japan's future despite last year's nuclear disaster at Fukushima.

But economists say there is little new in Mr Abe's policies, or 'Abenomics' as they have been called. They have been adopted by previous LDP governments without successfully renewing the Japanese economy.

In a recent interview, Mr Abe told me [Rupert Wingfield-Hayes] it was time for Japan to change its pacifist constitution so it can have a proper military and defend its own territory. He also vowed to protect every inch of Japan's sacred land and sea - including the disputed Senkaku or Diaoyu Islands.

That by itself is not particularly controversial. But Mr Abe belongs to that part of Japanese society that does not really believe Japan's wartime aggression against China and South East Asia was a crime.

He favours the teaching of a more patriotic, uncritical version of Japanese history. Most controversially, he has openly said he does not believe that Japanese troops forced Chinese, Korean, and women from other Asian countries into sexual slavery during the Second World War.

China will now be watching very closely. Will Mr Abe, as prime minister, visit the extremely controversial Yasakuni Shrine in Tokyo to pay homage to Japan's war dead? Will he move to revoke a 1993 Japanese government apology on the "comfort women" issue? And what will he do to about Chinese ships and aircraft challenging Japan's control of the Senkaku/Diaoyu Islands?

Turn to the Right?

More fiscal stimulus coupled with pressure on the central bank for looser monetary policies cannot be associated with "right-wing" politics.

However, his request to change the constitution to allow Japan to "have a proper military and defend its own territory, including every inch of Japan's sacred land and sea - including the disputed Senkaku or Diaoyu Islands" is certainly right-wing.

Abe's denial regarding "comfort women" in World War II is as preposterous as neo-Nazi claims that Hitler did not kill Jews.

On these three issues, his monetary policy is a scary turn to the left, his militarism is a scary turn to the right, and his denial regarding "comfort women" is a dive straight into the loony bin.

Yen, Nikkei

The politics of Abe seem favorable for a continued decline in the Yen and a rise in Japanese equities.

$XJY Yen Daily



$NIKK Nikkei Daily



Since Mid-November the Nikkei has been on an upward tear. The Yen has been in decline since the start of October.

Both trends have favorable fundamentals, and both are worth watching.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com