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 The Political Economy of the Abe
Government and Abenomics Reforms

This volume seeks to explain the political economy of the Abe government and
the so-called “Abenomics” economic policies. The Abe government represents
a major turning point in postwar Japanese political economy. In 2019, Abe
became the longest serving Prime Minister in Japanese history. Abe’s
government stood out not only for its longevity, but also for its policies. Abe
came to power promising to reinvigorate Japan’s economy under the banner of
Abenomics. He pursed a host of structural reforms and industrial promotions
to increase Japan’s potential growth rate. Abe also achieved important
legislative victories in security policy. However, the government also faced
significant controversies. The book will hold appeal to scholars and students
specializing in the study of Japanese politics, comparative political economy,
the politics of contemporary advanced democracies, macroeconomic policy,
labor market reforms, corporate governance, gender equality, agricultural
reforms, energy and climate change, and East Asian security.
takeo hoshi is Professor of Economics at the University of Tokyo. His
research interest includes corporate finance, banking, monetary policy and the
Japanese economy. He received the 2015 Japanese Bankers Academic
Research Promotion Foundation Award, 2006 Enjoji Jiro Memorial Prize of
Nihon Keizai Shimbun, and the 2005 Japan Economic Association-Nakahara
Prize. His book Corporate Financing and Governance in Japan: The Road to
the Future (2001) co-authored with Anil Kashyap received the Nikkei Award
for the Best Economics Books. He co-authored The Japanese Economy (2020)
with Takatoshi Ito. Hoshi received his PhD in economics from the
Massachusetts Institute of Technology.

phillip y. lipscy is Associate Professor of Political Science and Director

of the Centre for the Study of Global Japan at the Munk School of Global
Affairs and Public Policy, University of Toronto. He researches
international and comparative political economy with a focus on Japan.
He is author of Renegotiating the World Order: Institutional Change in
International Relations (2017) and co-editor of Japan under the DPJ: The
Politics of Transition and Governance (2013). Lipscy obtained his PhD in
political science at Harvard University, an MA in international policy
studies and BA in economics and political science at Stanford University.
The Political Economy of
the Abe Government and
Abenomics Reforms
Edited by
takeo hoshi
University of Tokyo
phillip y. lipscy
University of Toronto
University Printing House, Cambridge CB2 8BS, United Kingdom
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Cambridge University Press is part of the University of Cambridge.

It furthers the University’s mission by disseminating knowledge in the pursuit of
education, learning, and research at the highest international levels of excellence.

www.cambridge.org
Information on this title: www.cambridge.org/9781108843959
DOI: 10.1017/9781108921145
© Cambridge University Press 2021
This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 2021
A catalogue record for this publication is available from the British Library.
ISBN 978-1-108-84395-9 Hardback
Cambridge University Press has no responsibility for the persistence or accuracy of
URLs for external or third-party internet websites referred to in this publication
and does not guarantee that any content on such websites is, or will remain,
accurate or appropriate.
In memory of Masahiko Aoki
Contents

List of Figures page x

List of Tables xiv
List of Contributors xvi
Acknowledgments xxv
List of Abbreviations xxvii

Part I Introduction 1
1 The Political Economy of the Abe Government 3
t a k e o h o s h i a n d ph i l l i p y. l i p s c y

Part II Political Context 41

2 Expansion of the Japanese Prime Minister’s Power and
Transformation of Japanese Politics 43
ha r u k at a t a k e n a k a
3 Why Does the Abe Government’s Approval Rating Always
Recover? 68
m as a ru k o h n o
4 The LDP under Abe 87
yu k i o m a e d a a n d s t e v e n r . r e e d
5 The Third Arrow of Abenomics: Est. in 2013 – or 2007? 109
t a k at o s h i i t o

Part III Macroeconomic Policy 137

6 Abenomics, Monetary Policy, and Consumption 139
j o s h u a k. h a u s m a n , t ak a s h i u n a y am a , a n d
j o h a nn e s f . w i e la n d

vii
viii Contents

7 The Great Disconnect: The Decoupling of Wage

and Price Inflation in Japan 170
t a k e o h o s h i an d a n i l k k a s h y ap
8 Abenomics, the Exchange Rate, and Markup
Dynamics in Japanese Industries 200
k yo j i fu k a o an d sh u i c h i r o n i s h i o ka
9 The Crisis That Wasn’t: How Japan Has Avoided
a Bond Market Panic 239
m a rk b a m ba a n d da v i d e . w e i ns t e i n

Part IV Third Arrow of Abenomics 269

10 Abe’s Slight Left Turn: How a Labor Shortage
Transformed Politics and Policy 271
steven k. vogel
11 Abe’s Womenomics Policy: Did It Reduce
the Gender Gap in Management? 310
n ob u k o na g a s e
12 Corporate Governance Reforms under Abenomics:
The Economic Consequences of Two Codes 357
h id ea k i mi ya j ima an d t ak u ji s a ito
13 Abenomics and Japan’s Entrepreneurship and Innovation:
Is the Third Arrow Pointed in the Right Direction
for Global Competition in the Silicon Valley Era? 394
k en j i e . k u s h i d a
14 Japanese Agricultural Reform under Abenomics 421
p a t ri c i a l . m a c l a c h l a n a nd k a y s h i m i z u
15 The Politics of Energy and Climate Change in Japan
under the Abe Government 445
t r e vo r i n c e r t i a n d p h i l l i p y . li p s c y

Part V Foreign Policy 477

16 Japan’s Defense Reforms under Abe: Assessing
Institutional and Policy Change 479
a da m p . l i f f
Contents ix

17 The Enduring Challenges of History Issues 511

m ar y m . m c c ar t h y

Index 534
Figures

1.1 Election results in the Japanese lower house, 1986–2017 page 6

1.2 Passage rate of Diet legislation (%), 1980–2019 7
2.1 The chain of delegation in the parliamentary system 46
2.2 The “1955 system” 50
2.3 After the 1994 reform 52
2.4 After the 2001 reform 54
2.5 Politicians with ministerial experience 56
2.6 Public officials in the Cabinet Secretariat 57
2.7 Expansion of special policy units in the Cabinet
Secretariat (under the director general of cabinet affairs
and the assistant deputy chief cabinet secretary) 57
2.8 Officials in the Cabinet Office 58
2.9 Councils set up under the cabinet 59
2.10 Bills submitted by the Cabinet Secretariat 59
2.11 After the 2014 reform 60
3.1 Public confidence in the Abe government 71
3.2 Confidence in the government and economic indicators 74
3.3 Distribution of government evaluation in comparison 78
3.4 (A) Views on new national security law and priming
effect; (B) Priming effect and views on constitutionality
among pro-legislation respondents; (C) Priming effect
and views on constitutionality among anti-legislation
respondents 79
4.1 Number of votes cast for the LDP and the DPJ,
2003–2014 89
4.2 Cabinet approval from December 2012 to October 2019 97
4.3 Approval and reason for approval from December 2012
to October 2019 99
4.4 Disapproval and reason for disapproval from
December 2012 to October 2019 100
5.1 Agricultural, forestry and fishery product: exports 121

x
List of Figures xi

5.2 Visitor arrivals, international 125

5.3 International passengers, Narita and Haneda airports 127
5.4 Changes in the GPIF portfolio allocation 130
6.1 Abenomics’ financial market effects 143
6.2 Japanese actual and expected inflation 147
6.3 (A) Annualized quarter-on-quarter GDP growth since
2007. (B) Comparison of annualized contributions to
GDP by component during Abenomics (2012–2018), the
lost decade excluding the Great Recession (1994–2007),
and the Great Recession (2007–2012) 150
6.4 Actual and forecast output and consumption 152
6.5 Checking FIES data consistency with the national accounts 155
6.6 FIES results 156
6.7 FIES results 157
7.1 Japanese price inflation, 1971–2018 176
7.2 Japanese wage inflation, 1971–2018 177
7.3 Wages and bonuses in Japan, 1993–2018 181
7.4 Composition of the Japanese workforce (establishments
with more than thirty employees) 182
7.5 Proportion of firms with excess full-time workers
(percentage) 185
7.6 Japanese price and wage level, 1981–2018 (2012=100) 188
7.7 Impulse response of core-core inflation to Cholesky One
Standard Deviation Innovations, 1981:Q1–1997:Q4 190
7.8 Impulse response of core-core inflation to Cholesky One
Standard Deviation Innovations, 1998:Q1–2018:Q4 192
7.9 Correlation between unobserved trends for core-core
CPI inflation rate and wage inflation rate for all workers 194
8.1 GDP gap, 1990–2015 201
8.2 Japan’s exchange rate (monthly) 202
8.3 Japan’s market and PPP rates 204
8.4 Markups in manufacturing 205
8.5 Markup dynamics in Japan 215
8.6 Markups in selected industries 219
8.7 Markups before/after Abenomics 220
8.8 Log prices in manufacturing 228
9.1 Japan’s interest rate gap 244
9.2 Per capita expenditure versus GDP 246
9.3 Sources of government revenue 248
xii List of Figures

9.4 Government revenues and expenditures 249

9.5 Japan’s debt levels 250
9.6 Log money supply 252
9.7 Japan 2020–2100: government expenses as a share of
GDP by population group (Case 1) 258
9.8 Japan 2020–2100: government expenses as a share of
GDP by population group (Case 2) 259
9.9 Japan 2020–2100: government expenses as a share of
GDP by population group (Case 3) 259
10.1 Japan’s population: actual and projected, 2000–2065 272
10.2 The unemployment rate in Japan, 1995–2018 273
10.3 Job offers to applicants ratio in Japan, 1995–2019 273
10.4 The rise of economic inequality in Japan, 1995–2015
(Gini coefficient, before taxes and transfers) 279
10.5 The increase in non-regular workers in Japan,
1988–2019 (percentage) 282
10.6 Labor productivity in Japan and the United States,
2000–2018 (GDP per hour worked, US dollars) 287
11.1 Female average wage as percent of male average wage,
by educational attainment, age 23–59 when not
otherwise specified 322
11.2 Wage distribution of males for permanent contract
regular workers 324
11.3 Wage distribution of females for permanent contract
standard workers 324
11.4 Wage distribution of males for all nonstandard workers 325
11.5 Wage distribution of females for all nonstandard workers 325
11.6 Ratio of managers in narrow definition among
employees aged 22–59 by gender and firm size 327
11.7 Gender ratio of managers among all workers and among
permanent contract workers including non-seishain 332
11.8 (A) Ratio of those in different managerial positions by
age group, birth cohort of 1965–1969, university
graduates at large firms; (B) Ratio of those in different
managerial positions by age group, birth cohort of
1980–1984, university graduates at large firms 333
11.9 Percentage of workers in any managerial position at
large firms by gender 335
List of Figures xiii

11.10 Ratio of section chief among permanent contract

employees by gender, comparison of those working at
firms with 100–299 employees to those with 300–499 336
11.11 Ratio of section heads to other subordinated managers
by gender, comparison of those working at firms with
100–299 employees to those with 300–499 337
12.1 Transition of ownership structure of Japanese firms 360
12.2 Transition of board structure of Japanese firms 362
15.1 Japanese energy mix before and after Fukushima
(2006–2018) 450
15.2 Cross-national renewable energy share excluding
hydropower, 1990–2018 451
15.3 Public opinion on nuclear power in Japan: “What do you
think should be done with the current number of nuclear
plants in Japan?” 457
15.4 Japanese electricity prices, 1970–2017 458
15.5 CO2 emissions intensity (Mt CO2/2010 USD billions),
Japan vs. European G7 countries, 1960–2015 463
15.6 Percentile rank of Japan in the climate policy component
of the Germanwatch Climate Change Performance Index 466
Tables

3.1 Evaluations of the Abe government and the national

security law page 76
3.2 Different sequence of questions 77
5.1 Prime ministers since 2001 112
5.2 Japan’s FTAs (signed and in effect), as of January 2020 116
5.3 GPIF portfolio allocation benchmark and tolerance band 131
6.1 Announcement effects 145
6.2 Macro summary statistics 149
7.1 ARMA models for price and wage inflation 178
7.2 ARMAX models for wage inflation with unemployment
rate (UNEMP) 183
7.3 ARMAX models for wage inflation with unemployment
rate: full-time and part-time workers 186
7.4 VAR system with core-core inflation, wage inflation, and
bonus inflation, 1981:Q1–1997:Q4 189
7.5 VAR system with core-core inflation, wage inflation, and
bonus inflation, 1998:Q1–2018:Q4 193
8.1 Summary statistics for output prices and marginal costs,
1994–2006 212
8.2 Summary statistics for markup growth, 1994–2006 216
8.3 Decomposition analysis for markup growth in
manufacturing, 2006–2015 221
8.4 Decomposition analysis for markup growth in services,
2006–2015 225
8.5 Import competition and markups (manufacturing) 230
8.6 Import competition and markups (services) 232
8.7 Prices and the exchange rate 233
9.1 Sustainable tax rates based on privately held net debt 255
9.2 Sustainable tax rates based on BOJ-inclusive net debt 257
10.1 Types of labor adjustment in Japan, 1993–2018
(percentage) 281

xiv
List of Tables xv

10.2 The foreign worker program by industry 295

11.1 Ratio of managers in broader definition (denominator,
all workers) 329
11.2 Ratio of managers in broader definition by gender
(denominator permanent full-time workers) 331
11.3 Probit analysis of being a manager, marginal effects 341
11.4 Estimate of Abe’s policy on female promotion by firm size 343
12.1 Major events related to corporate governance reforms
under Abenomics 364
12.2 Distribution of institutional investor ownership 369
12.3 Characteristics of boards of directors 372
12.4 The effect of outside directors on corporate performance 376
12.5 Firm characteristics classified by the level of relational
shareholdings 379
12.6 Average firm performance and behavior 383
12.7 The effect of institutional ownership on firm
performance and behavior 386
13.1 Abenomics third arrow strategies over time 397
13.2 Silicon Valley ecosystem characteristics compared to
Japan’s impediments in the 1990s, changes by 2016 398
13.3 Selected venture capital–related KPIs 401
13.4 Select KPIs for human capital 406
13.5 Select KPIs for university–industry–government ties 409
13.6 Select KPIs for industry–university–government
collaboration 411
Contributors

Mark Bamba is a PhD candidate in economics at Princeton University.

His research interests are in international trade, economic geog-
raphy, and the Japanese economy. He received his BS and MS in
applied physics from Columbia University.
Kyoji Fukao is president of the Institute of Developing Economies,
Japan External Trade organization (IDE-JETRO), and Specially
Appointed Professor at the Institute of Economic Research,
Hitotsubashi University. He has published widely on productivity,
international economics, economic history, and related topics in
journals such as the Journal of Political Economy, the Quarterly
Journal of Economics, and the Review of Income and Wealth. In
addition, he is the editor of many books on productivity and eco-
nomic history, including The World Economy: Growth or
Stagnation (Cambridge University Press, 2016) with Dale
W. Jorgenson and Marcel Timmer.
Joshua Hausman is an associate professor of public policy and eco-
nomics at the University of Michigan and a faculty research fellow at
the National Bureau of Economic Research. His research interests
are in economic history and macroeconomics with a focus on the US
economy in the 1930s and the Japanese economy today. Josh holds
a BA in economics from Swarthmore College and a PhD in econom-
ics from the University of California, Berkeley. From 2005 to 2007
he worked as a research assistant at the Federal Reserve Board, and
in 2010 he worked as a staff economist at the Council of Economic
Advisers. Josh won the 2013 Allan Nevins Prize for the best disser-
tation on US or Canadian economic history.
Takeo Hoshi is Professor of Economics at the University of Tokyo. His
research interests include corporate finance, banking, monetary pol-
icy, and Japanese economy. He received the 2015 Japanese Bankers

xvi
List of Contributors xvii

Academic Research Promotion Foundation Award, the 2006 Enjoji

Jiro Memorial Prize of the Nihon Keizai Shimbun, and the 2005
Japan Economic Association-Nakahara Prize. His book Corporate
Financing and Governance in Japan: The Road to the Future (MIT
Press, 2001), co-authored with Anil Kashyap, received the Nikkei
Award for Best Economics Book. He co-authored The Japanese
Economy (MIT Press, 2020) with Takatoshi Ito. Hoshi received his
PhD in economics from the Massachusetts Institute of Technology.
Trevor Incerti is a PhD candidate in political science at Yale University.
His research focuses primarily on the use of political office for private
or corporate gain, with an emphasis on regulation, corruption, and
energy policy. Prior to Yale, Trevor worked as a data scientist at
TrueCar, Inc., and as an economic consultant at Compass Lexecon.
He holds BAs in political economy and Asian studies from UC
Berkeley and an MA in political science from Yale University.
Takatoshi Ito is Professor of International and Public Affairs at the
School of International and Public Affairs, Columbia University. He
is an expert on international finance, macroeconomics, and the
Japanese economy who served from 2006 to 2008 as a member of
the Prime Minister’s Council on Economic and Fiscal Policy. He also
held senior positions in the Japanese Ministry of Finance and at the
International Monetary Fund. Ito served as dean of the University of
Tokyo’s Graduate School of Public Policy for the past two years and
as professor at Japan’s National Graduate Institute for Policy
Studies. He has served as a visiting professor at both Columbia and
Harvard and taught at other institutions. He earned his PhD in
economics at Harvard University.

Anil K Kashyap is the Stevens Distinguished Service Professor of

Economics and Finance at the University of Chicago Booth School
of Business. His research focuses on banking, business cycles, cor-
porate finance, price setting, and monetary policy. His research has
won him numerous awards, including a Sloan Research Fellowship,
the Nikkei Prize for Excellent Books in Economic Sciences, and
a Senior Houblon-Norman Fellowship from the Bank of England.
Since 2016 he has been an external member of the Bank of England’s
Financial Policy Committee. In 2017 he was awarded the “Order of
the Rising Sun, Gold Rays with Neck Ribbon” by the government of
xviii List of Contributors

Japan. His bachelor’s degree is from the University of California at

Davis and his PhD is from the Massachusetts Institute of
Technology.
Masaru Kohno is Professor of Political Science at the School of Political
Science and Economics at Waseda University in Tokyo, Japan.
Before joining Waseda, Professor Kohno taught at the University of
British Columbia (1994–1998) and at Aoyama Gakuin University
(1998–2003), and he was a national fellow at the Hoover Institution
at Stanford University (1996–1997). He has published a number of
books and articles on Japanese politics and Japan’s foreign relations,
including Japan’s Postwar Party Politics (Princeton University Press,
1997), Seido (Institutions) (University of Tokyo Press, 2002), and
Seiji o Kagaku Suru Koto wa Kano-ka (Is It Possible to Study Politics
Scientifically?) (Chuo Koron Shin-sha, 2018). Professor Kohno is
currently engaged in a variety of research activities, including survey
experiments in aid-receiving countries, inquiries into citizens’ atti-
tude toward hate-speech regulations, and text-analysis of popular
song lyrics regarding the concept of freedom in North America.

Kenji E. Kushida is the Japan Program Research Scholar at the Walter

H. Shorenstein Asia-Pacific Research Center at Stanford University.
He is an international research fellow at the Canon Institute for
Global Studies. Kushida’s research and publications are focused on
the following streams : how politics and regulations shape the devel-
opment and diffusion of Information Technology such as AI; the
institutional underpinnings of the Silicon Valley ecosystem; Japan’s
transforming political economy; Japan’s startup ecosystem; the role
of foreign multinational firms in Japan; and Japan’s Fukushima
nuclear disaster. He spearheaded the Silicon Valley–New Japan pro-
ject that brought together large Japanese firms and the Silicon Valley
ecosystem. Kushida holds a PhD in political science from the
University of California, Berkeley. He received his MA in East
Asian Studies and BAs in economics and East Asian Studies with
honors, all from Stanford University.

Adam P. Liff is Associate Professor of East Asian International

Relations at Indiana University’s Hamilton Lugar School of Global
and International Studies, where he also serves as founding director
of its 21st-Century Japan Politics & Society Initiative. His research
List of Contributors xix

focuses on international security affairs and the Asia-Pacific – espe-

cially Japanese and Chinese security policy; USA–Asia-Pacific strat-
egy; the USA–Japan alliance; and the rise of China. Aside from his
duties at Indiana University, Dr. Liff is a Non-resident Senior Fellow
at the Brookings Institution’s Center for East Asia Policy Studies. He
holds a PhD and an MA in politics from Princeton University, as well
as a BA from Stanford University.

Phillip Y. Lipscy is Associate Professor of Political Science at the

University of Toronto. He is also Chair in Japanese Politics and
Global Affairs and director of the Centre for the Study of Global
Japan at the Munk School of Global Affairs & Public Policy. His
research addresses substantive topics such as international cooper-
ation, international organizations, the politics of energy and climate
change, international relations of East Asia, and the politics of
financial crises. He has also published extensively on Japanese polit-
ics and foreign policy. Lipscy’s book Renegotiating the World
Order: Institutional Change in International Relations (Cambridge
University Press, 2017) examines how countries seek greater inter-
national influence by reforming or creating international organiza-
tions. His is also co-editor of Japan Under the DPJ: The Politics of
Transition and Governance (Brookings Institution, 2013).
Patricia L. Maclachlan is Professor of Government and the Mitsubishi
Heavy Industries Professor of Japanese Studies at the University of
Texas at Austin. A student of interest-group politics and political-
economic reform in Japan, her publications include Consumer
Politics in Postwar Japan: The Institutional Boundaries of Citizen
Activism (Columbia University Press, 2002) and The People’s Post
Office: The History and Politics of the Japanese Postal System,
1871–2010 (Harvard University East Asia Center, 2011). She is the
author, with Kay Shimizu, of a forthcoming book from Cornell
University Press on the reform of Japanese agricultural cooperatives.

Yukio Maeda is Professor of Political Science at the Inter-Faculty

Initiative in Information Studies, University of Tokyo. His research
interests include public opinion and voting behavior; approval rat-
ings for prime ministers; methodology for public opinion polling and
social survey; and data preservation and dissemination in social
sciences. He advises the Association for Promoting Fair Elections
xx List of Contributors

(aka Meisuikyo) for its post-election survey and the polling section of
Kyodo News for its election forecast. He was a member of the Social
Science Japan Data Archive from 2006 to 2017. He also served as
a Japanese local committee member for many international academic
surveys, including Comparative Study of Electoral Systems (CSES),
Asian Barometer, World Value Survey (WVS), and East Asian Social
Survey (EASS).

Mary M. McCarthy is an associate professor of politics and inter-

national relations at Drake University in Des Moines, Iowa. She
specializes in Japan’s domestic and foreign policies and is editor of
the Routledge Handbook of Japanese Foreign Policy (2018). Her
current research and most recent publications examine the historical
legacies of the Asia-Pacific War on Japan’s foreign relations, with
a particular focus on the comfort women issue. Dr McCarthy is
a Mansfield Foundation US–Japan Network for the Future Scholar
and was a 2014 Japan Studies Resident Fellow at the East-West
Center in Washington, DC. She received her BA in East Asian studies
and her PhD in political science from Columbia University.

Hideaki Miyajima is executive vice president for financial affairs at

Waseda University; Professor of Japanese Economy, Graduate
School of Commerce, Waseda University; and advisor, Waseda
Institute for Advanced Study (WIAS). He finished the PhD course-
work in economics at the University of Tokyo and received his PhD
at Waseda University. He first worked as a research associate at the
University of Tokyo Institute of Social Sciences and then moved to
Waseda University. He has been appointed to several positions:
Faculty Fellow at the Research Institute of Economy, Trade &
Industry; Special Research Fellow at the Policy Research Institute
(Ministry of Finance); Research Fellow at EHESS (École des hautes
études en sciences sociales, Paris); and adjunct professor at Chung-
Ang University (Seoul). He has published numerous papers in the
Journal of the Japanese and International Economies, the Review of
Financial Studies, the Journal of Banking and Finance, and
Corporate Governance. He also edited several books, including
Corporate Governance in Japan (Oxford University Press, 2007),
Changes and Continuity in Japan (Routledge Curzon Press, 2002),
and Policies for Competitiveness (Oxford University Press, 1999).
List of Contributors xxi

Nobuko Nagase is a professor of labor economics and social policy at

Ochanomizu University in Tokyo. Her research interests include
work and family issues in the Asian perspective, comparing Japan
with other East Asian and Western economies. She has pursued her
interests in the wage structure and work choice in Japan, given labor
market regulations, social security, and other social institutions as
child care, elderly long-term care, pensions, tax, and other institu-
tions on work. Her interests also extend to marital behavior and
childbirth timing. She obtained her PhD in 1995, one of the first
females granted such a degree in economics by the University of
Tokyo. Nagase has served at various Japanese governmental
appointments. Since 2012, she has been a member of the Science
Council of Japan. Results of her research have been published in
various scholarly peer-reviewed journals in Japan and overseas.
Shuichiro Nishioka is an associate professor at West Virginia
University’s Department of Economics. His research covers broad
issues in international trade, economic development, and East Asian
economies. His current research focuses on how competition, glo-
balization, and policy changes have created diverse economic, social,
and political outcomes in the United States, China, and Japan.
Nishioka received his PhD in economics from the University of
Colorado at Boulder.

Steven R. Reed is Emeritus Professor of Political Science at Chuo

University. He is a co-editor of and a contributor to the Japan
Decides series published by Palgrave. His most recent publication is
Political Corruption and Scandals in Japan, with Matthew
M. Carlson (Cornell University Press, 2018). He is currently working
on the development of patronage politics and religious groups and
politics in Japan.

Takuji Saito is Associate Professor of Finance at the Graduate School of

Business Administration, Keio University. His research interests
include corporate finance, corporate governance, board of directors,
family firms, and CEO succession. He holds a BA, an MA, and a PhD
in economics from Hitotsubashi University. Prior to his current
position, he was research fellow (postdoctoral) (2004–2006) of the
Japan Society for the Promotion of Science and lecturer (2007–2008)
xxii List of Contributors

and associate professor (2009–2011) at the Faculty of Economics,

Kyoto Sangyo University.

Kay Shimizu is a research assistant professor in the Department of

Political Science at the University of Pittsburgh. Her research
addresses institutional design and their effects on economic govern-
ance with a special interest in central local relations, small busi-
nesses, and property rights. Her publications include Political
Change in Japan: Electoral Behavior, Party Realignment, and the
Koizumi Reforms (Brookings Institution, 2009; co-edited with
Steven R. Reed and Kenneth McElwain) as well as articles in Socio-
Economic Review, the Journal of East Asian Studies, Current
History, and the Social Science Japan Journal. She is the author,
with Patricia L. Maclachlan, of a forthcoming book on agricultural
cooperative reform from Cornell University Press. Shimizu received
her PhD in political science from Stanford University.
Harukata Takenaka is Professor of Political Science at the National
Graduate Institute for Policy Studies in Japan. He studies the effect of
political institutions on the prime ministerial leadership and the role
of the Japanese House of Councillors in Japanese politics. His publi-
cations include Failed Democratization in Pre-war Japan: the
Breakdown of a Hybrid Regime (Stanford University Press, 2014),
Sangiin to ha Nanika (The role of the Japanese House of Councillors)
(Chuokoron Shinsha, 2010; winner of the Osaragi Jiro Rondan Prize
2011), and Shusho Shihai (Dominance of the Japanese prime minis-
ter) (Chuko Shinsho, 2006). Takenaka holds a BA from the Faculty
of Law of the University of Tokyo and a PhD in political science from
Stanford University.

Takashi Unayama is Professor of Economics at Kyoto University. His

research interests are household behavior, public policy, household
surveys, and issues in the Japanese economy. He especially focuses
on consumption-associated topics such as responses to tax cuts/
increases, public pension/child benefit payments, and retirement.
He is a member of the Statistics Commission and the Fiscal System
Council of Japan. He holds a BA and a PhD in economics from the
University of Tokyo.
List of Contributors xxiii

David E. Weinstein is Carl S. Shoup Professor of the Japanese Economy

at Columbia University. He is also director of the Center on Japanese
Economy and Business, director of the Japan Project at the National
Bureau of Economic Research, and a member of the Federal
Economic Statistics Advisory Committee. Previously, Professor
Weinstein was Chair of the Economics Department; senior econo-
mist as well as a consultant at the Federal Reserve Bank of
New York, the Federal Reserve Bank of San Francisco, and the
Federal Reserve Board of Governors; and a visiting professor at the
London School of Economics. Prior to joining the Columbia faculty,
Professor Weinstein held professorships at the University of
Michigan and Harvard University. He also served on the Council
of Economic Advisors from 1989 to 1990. Professor Weinstein
earned his PhD and MA in economics from the University of
Michigan and his BA at Yale University. He is the recipient of
many grants and awards, including five National Science
Foundation grants, an Institute for New Economic Thinking grant,
a Bank of International Settlements Fellowship, and a Google
Research Award.
Johannes Wieland is an associate professor of economics and
Distinguished Endowed Chair in Macroeconomics and Public
Finance at the University of California, San Diego. He is also
a research associate at the National Bureau of Economic Research.
His research interests are in macroeconomics and economic history,
with a focus on economies in deep recessions. Johannes holds a BA in
economics from the University of Cambridge, an MPhil in economics
from the University of Oxford, and a PhD in economics from the
University of California, Berkeley. From 2018 to 2019 he worked as
a visiting research economist at the Federal Reserve Bank of Chicago.

Steven K. Vogel is Chair of the Political Economy Program, the Il Han

New Professor of Asian Studies, and a professor of political science
at the University of California, Berkeley. He specializes in the polit-
ical economy of the advanced industrial countries, especially Japan.
He is the author of Marketcraft: How Governments Make Markets
Work (Oxford University Press, 2018) and Japan Remodeled: How
Government and Industry Are Reforming Japanese Capitalism
(Cornell University Press, 2006). His first book, Freer Markets,
xxiv List of Contributors

More Rules: Regulatory Reform in Advanced Industrial Countries

(Cornell University Press, 1996), won the Masayoshi Ohira
Memorial Prize. He has been a columnist for Newsweek Japan and
the Asahi Shimbun, and he has worked as a reporter for the Japan
Times in Tokyo and as a freelance journalist in France. He has a BA
from Princeton University and a PhD in political science from the
University of California, Berkeley.
Acknowledgments

This book is the result of two conferences that we organized when we

were colleagues at the Shorenstein Asia Pacific Research Center
(S-APARC) at Stanford University. The first conference was held in
February 2018; the second was in March 2019. We felt lucky to work
with so many top researchers in the field of Japanese political economy.
We thank all the authors, who provided excellent analyses of various
aspects of the political economy of Japan under the Abe administration.
Many authors attended both conferences and contributed to active
discussion in addition to writing up their own chapters.
The project benefited tremendously from participants who
contributed to the conferences as discussants. They include Seung
Cho, Saori Katada, Yong Suk Lee, Huiyu Li, Kenneth McElwain,
Curtis Milhaupt, Yuhei Miyauchi, Thuy Lan Nguyen, Katheryn Russ,
Dan Smith, Rob Weiner, Scott Wilbur, Yu Jin Woo, and John Zysman.
Our project also received excellent feedback from participants at the
2018 Yale Workshop on Japanese Politics and Diplomacy, organized
by Frances Rosenbluth, and two faculty seminars organized by our
colleagues at S-APARC in 2018 and 2019. We also thank the
anonymous reviewers for their helpful suggestions.
The two conferences that led to this book were part of the Stanford
Juku in Political Economy, which we inaugurated in 2013 to promote
scholarship and foster a sense of community among scholars who study
Japan. We have been delighted to see the Juku inspiring similar
initiatives by past participants. This book continues a long tradition
of collaborative work on contemporary Japan convened at S-APARC,
including most recently Political Change in Japan: Electoral Behavior,
Party Realignment, and the Koizumi Reforms (Brookings Institution,
2009), by Steven Reed, Kenneth McElwain, and Kay Shimizu, and
Japan under the DPJ: The Politics of Transition and Governance
(Brookings Institution, 2013), by Kenji Kushida and Phillip Lipscy.

xxv
xxvi Acknowledgements

Financial support for this project was provided by S-APARC and by

the Freeman and Spogli Institute for International Studies (FSI), both at
Stanford University; by the Japan Foundation Center for Global
Partnership; and by the Japan Society for the Promotion of Sciences
(JSPS). We thank them for making this project possible.
Indispensable in organizing the conferences and collecting chapters
from the authors was the superb support of staff members at S-APARC,
especially Meiko Kotani and Amanda Davidovich. We are grateful to
them for their support of this project as well as for their vital
contributions to the Japan Program during our time at Stanford.
Joe Ng at Cambridge University Press saw value in our project and
guided us through the process of publishing this book. We thank him,
as well as Gemma Smith, Gayathri Tamilselvan, and Wade Guyitt for
their help and patience. We also thank Koteki Cho at the University of
Tokyo for indexing the manuscript.
This book is dedicated to the memory of Masahiko Aoki, who was
our esteemed colleague at Stanford University. His work on economic
theory, comparative institutional analysis, and the Japanese political
economy is very well known. His class on the Japanese economy at
Stanford attracted and inspired many students, including a younger
version of one of us (Lipscy). When a group of us sought to revive Japan
studies at S-APARC by establishing the Japan Program in 2011, he
assumed early leadership as founder. He was a dear friend, mentor, and
colleague. Masa Aoki was one of the pioneers who created the study of
the Japanese political economy as we know it today. Although we
started this project after he had passed away, we hope our work sits
well with the intellectual trajectory that he originated.
Abbreviations

AI artificial intelligence
APCs agricultural production corporations
ASEAN Association of South East Asian Nations
AWF Asian Women’s Fund
BOJ Bank of Japan
CDPJ Constitutional Democratic Party of Japan
CEFP Council of Economic and Fiscal Policy
CEO chief executive officer
CGC Corporate Governance Code
CLB Cabinet Legislation Bureau
CNN Cable News Network
CO2 carbon dioxide
COVID coronavirus disease
CPI Consumer Price Index
CPTPP Comprehensive and Progressive Agreement for
Trans-Pacific Partnership
CRRA constant relative risk aversion
CSD collective self-defense
CWNC company with nominating committee
DARPA Defense Advanced Research Projects Agency
DPJ Democratic Party of Japan
EEOL Equal Employment Opportunity Law
EPA Economic Partnership Agreement
ETF exchange-traded fund
EU European Union
FDI foreign direct investment
FIES Family Income and Expenditure Survey
FIT feed-in tariff
FLCBs farmland consolidation banks
FOIP Free and Open Indo-Pacific
FTA Free Trade Agreement

xxvii
xxviii List of Abbreviations

G7 Group of Seven
GATT General Agreement on Tariffs and Trade
GDP gross domestic product
GPIF Government Pension Investment Fund
ICT Information and Communications Technology
ILO International Labour Organization
IMF International Monetary Fund
INDEC Intended Nationally Determined Contributions
IoT Internet of Things
IPOs initial public offerings
ISS Institutional Shareholder Services
IT information technology
J-NSC Jiminto (Liberal Democratic Party) Net Supporters
Club
JA Japan Agricultural Cooperatives
JANE Japan Association of New Economy
JCG Japan Coast Guard
JILPT Japan Institute for Labor Policy and Training
JIP Japan Industrial Productivity
JGBs Japanese Government Bonds
JMA Japan Medical Association
JSC Japanese Stewardship Code
JSDF Japan Self-Defense Forces
JSP Japan Socialist Party
KPIs key performance indicators
LCC low-cost carriers
LDP Liberal Democratic Party
MAFF Ministry of Agriculture, Forestry and Fisheries
M&A mergers and acquisitions
METI Ministry of Economy, Trade, and Industry
MHLW Ministry of Health, Labor and Welfare
MOE Ministry of the Environment
MOF Ministry of Finance
MOFA Ministry of Foreign Affairs
MP Member of Parliament
MTDPs Medium-Term Defense Programs
NATO North Atlantic Treaty Organization
NDPG National Defense Program Guidelines
List of Abbreviations xxix

NEDO New Energy and Industrial Development

Organization
NIH National Institute of Health
NIPSSR National Institute of Population and Social Security
Research
NISA Nuclear and Industrial Safety Agency
NRA Nuclear Regulatory Authority
NSC National Security Council; Nuclear Safety
Commission
NSF National Science Foundation
NSS National Security Secretariat
OECD Organisation for Economic Co-operation and
Development
PARC Policy Affairs Research Council
PAYGO pay-as-you-go
PFG Party for Future Generations
PM prime minister
PPP purchasing power parity
PR proportional representation
QQE quantitative and qualitative easing
R&D research and development
ROA return on assets
ROE return on equity
SMD single-member district
SMEs small and medium-sized enterprises
SNTV-MMD single nontransferable vote, multimember district
SRJE Secretariat for the Revitalization of the Japanese
Economy
STOVL short take-off and vertical landing
TEPCO Tokyo Electric Power Company
TFP total factor productivity
TLOs Technology Licensing Offices
TPP Trans-Pacific Partnership
TSE Tokyo Stock Exchange
UN PKO United Nations Peacekeeping Operations
UNESCO United Nations Educational, Scientific and Cultural
Organization
UNFCCC United Nations Framework Convention on Climate
Change
xxx List of Abbreviations

US/USA United States of America

VAT value-added tax
VAR vector auto regression
VC venture capital
part i

Introduction
1 The Political Economy of the Abe
Government
t a k e o ho s h i a n d p h i l l i p y . l i p s c y

1.1 Introduction
The government of Shinzo Abe, which ruled Japan from 2012 to 2020,
represents an important turning point in Japanese politics and political
economy. Abe became the longest-serving prime minister in Japanese
history, reversing a trend of short-lived leaders. But his government
stands out not only for its longevity but also for its policies: Abe
implemented a variety of significant changes, among the most import-
ant being a series of economic reforms to reinvigorate Japan’s economy
under the banner of “Abenomics.” In this introductory chapter, we
provide a broad review of the Abe government and its policies and
point out several apparent puzzles that motivate the volume.
We argue that the Abe government is the clearest manifestation of
a new Japanese political system that represents a full transition away
from the 1955 system. The new system is characterized by a strong
prime minister with centralized authority, careful management of pub-
lic opinion, the strategic use of elections for party discipline, and a focus
on policies with broad, popular appeal. Abe utilized and strengthened
Japan’s new political institutions to implement significant policy
changes across a wide range of issue areas, including monetary and
fiscal policy, the labor market, corporate governance, agricultural
reforms, and national security.
The first two “arrows” of Abenomics (“bold monetary policy” and
“flexible fiscal policy”) were expansionary macroeconomic policies
that sought to normalize Japan’s economy by bringing an end to
persistent deflation. To implement “bold” monetary policy, Abe
appointed Haruhiko Kuroda as governor of the Bank of Japan (BOJ),
and the BOJ engaged in an unprecedented expansion of its balance
sheet. “Flexible” fiscal policy meant that the government pursued fiscal
expansion to stimulate the economy while being mindful of fiscal

3
4 Takeo Hoshi and Phillip Y. Lipscy

prudence. Thus, fiscal policy also turned more expansionary, but the
government raised the value-added tax (VAT) rate in April 2014 as the
starting point for fiscal consolidation in the long run. The VAT rate was
scheduled to be raised again in October 2015, but less-than-stellar
economic growth prompted the government to postpone the tax hike
twice before it was finally enacted in October 2019. During Abe’s
tenure, deflation came to an end, and, until the 2020 coronavirus
disease (COVID-19) pandemic, the Japanese economy grew relatively
consistently. Nonetheless, the 2 percent inflation rate target, which was
supposed to be achieved in two years, remained unattained even after
seven years, and the goal of raising nominal GDP to 600 trillion yen by
2020 was out of reach even before the pandemic.
Many economic reforms were included in the third arrow of
Abenomics, also known as “growth strategy to promote private invest-
ment.” Here, Abe pursed various industrial promotions and a host of
structural reforms to increase Japan’s potential growth rate. Among
other things, Abe’s government sought reforms in unproductive sectors
such as agriculture; deregulation of the electricity distribution market;
promotion of innovation and entrepreneurship, especially in promising
industries such as artificial intelligence (AI), robotics, and healthcare;
“womenomics” policies to empower women in the labor market; other
labor market reforms to establish “work-life” balance; corporate gov-
ernance reform; and attempts to open up Japan to the rest of the world,
including participation in the Trans-Pacific Partnership (TPP) and the
promotion of inbound tourism and inward foreign direct investment.
The reforms were first packaged in the growth strategy that was
announced in June of 2013. The emphasis on various economic
reforms changed over time as the growth strategy was revised annually.
In foreign policy, Abe’s approach represented a mix of nationalism
and pragmatism. This was a surprise to many foreign observers who
initially reacted with consternation to Abe’s ascendance, fearing he
would pursue a revisionist agenda and exacerbate tensions with
regional neighbors (Oros 2017, pp.129–130). Abe faced international
criticism when he visited the controversial Yasukuni Shrine in 2013,
and conflicts over history issues with South Korea intensified after
2017, when President Moon Jae-in rose to power. However, Abe’s
foreign policymaking largely reflected a pragmatic approach, con-
strained by both geopolitical and domestic realities, such as the con-
tinuing rise of China and the electoral codependence of the Liberal
The Political Economy of the Abe Government 5

Democratic Party (LDP) on the more moderate Komei Party (Liff &
Maeda 2019). Among other things, Abe refrained from visiting
Yasukuni Shrine after 2013, negotiated an agreement with South
Korea on compensating comfort women in 2015, became the first
Japanese prime minister to visit Pearl Harbor in 2016, and pursed
diplomatic rapprochement with China (see Chapter 17). After the
victory of Donald Trump in the 2016 US presidential election, Abe
pursued a “bromance” foreign policy that established himself as one of
the president’s closest foreign counterparts.
Abe orchestrated important shifts that built on long-term evolution-
ary trends in Japanese security policy (see Chapter 16). These included
several major legislative victories: secrecy legislation in 2013 to facili-
tate greater intelligence sharing; security legislation in 2015 that allows
the Japan Self-Defense Forces (JSDF) to engage in collective self-
defense under limited circumstances; and anti-terrorism legislation in
2017 that increases the government’s domestic surveillance authority.
The Abe government reversed a decade-long decline in Japanese
defense spending, which reached postwar highs after 2015. The Free
and Open Indo-Pacific (FOIP) vision, developed by the Japanese
Ministry of Foreign Affairs, was embraced by the Trump administra-
tion during Abe’s tenure, though the substance of FOIP remained
somewhat vague and contested (Hosoya 2019).
Several of Abe’s personal priorities proved elusive. Revision of the
Japanese constitution was a long-standing goal for Abe, and his large
Diet majorities created an unprecedented opportunity. However, Abe
struggled throughout his tenure to galvanize sufficient political and
popular enthusiasm for the idea (McElwain 2020). Despite consider-
able efforts, Abe also ultimately could not make progress on the issue of
North Korea abductions of Japanese citizens or conclude a peace treaty
with Russia.
Abe’s government also invited significant controversy. Abenomics
reforms came under fire for a variety of shortcomings, such as stagnant
consumption growth (Chapter 6), lack of significant inflation despite
unprecedented monetary expansion (Chapter 7), and inadequate atten-
tion to climate change (Chapter 15). Journalists assailed Abe’s heavy-
handed approach toward the media, particularly liberal news outlets
such as Asahi (Fackler 2016). The Abe government adopted an assert-
ive approach toward international organizations despite widespread
criticism, withdrawing from the International Whaling Commission
6 Takeo Hoshi and Phillip Y. Lipscy

and threatening to pull funding from UNESCO over its handling of the
Nanking Massacre (Lipscy 2020). The government’s security legisla-
tion invited large-scale protests from civil society groups fearing
entanglements in military conflicts and potential violations of human
rights.

1.2 Puzzles
The track record of the Abe government raises some intriguing puzzles
for scholars of Japanese politics and political economy. First, how was
Abe able to remain in and exert power for so long? After Koizumi,
Japan saw a revolving door of six prime ministers come to power and
follow a predictable pattern of collapsing approval ratings and resig-
nation within about a year. Abe himself was among these short-lived
prime ministers, lasting only a year in 2006–2007. What was different
in 2012? Figure 1.1 shows lower house election results for the Japanese
Diet from 1986 to 2017. Abe won three consecutive landslide victories
in the lower house – in 2012, 2014, and 2017 – which saw his LDP and
coalition partner Komei capture about two-thirds of total seats. The

100% JCP JCP JCP JCP JCP

JCP JCP Other Other
Other Other Other
Other Other
Other Other Ishin
90% Other
Other Ishin
Ishin Hope
DPJ
80%
SDPJ DPJ DPJ
SDPJ
DPJ DPJ CDPJ
70%
Komei Komei Komei Komei Komei
DPJ
60% SDPJ
Komei DPJ SDPJ
Komei Komei
50% Komei
SDPJ

40%

30% LDP
LDP LDP LDP LDP
LDP Komei
LDP LDP
LDP
LDP
20%

LDP
10%

0%
1986 1990 1993 1996 2000 2003 2005 2009 2012 2014 2017

Figure 1.1 Election results in the Japanese lower house, 1986–2017

The Political Economy of the Abe Government 7

magnitude of these victories is comparable to the 2005 election under

Koizumi, which was considered a historical landslide at the time
(Kabashima & Steel 2007). How was Abe able to win decisive victories
with such reliability and frequency?
Second, how was Abe able to overcome intraparty divisions that
bedeviled governments of his predecessors under both the LDP and
Democratic Party of Japan (DPJ)? Prime ministers of both parties
struggled to reconcile the conflicting priorities of reformist politicians,
primarily drawn from urban districts, and conservatives representing
rural districts. In contrast, Abe successfully marginalized potential
opponents within the LDP, such as Shigeru Ishiba, and faced limited
internal challenges. One illustration of this is Figure 1.2, which shows
the passage rate of legislation submitted to the Diet from 1980 to 2019,
separated by cabinet-submitted legislation and legislation submitted by
lawmakers. The DPJ government was characterized by an unusually
low passage rate of cabinet-submitted legislation and a high passage
rate of non-cabinet legislation, reflecting internecine conflict within the
party (Kushida & Lipscy 2013). In contrast, the Abe government saw

Passage Rate of Diet Legislation (%), 1980–2019

100%

90%

80%
Cabinet-Submitted Legislation
70% Non-Cabinet Legislation

60%

50% DPJ LDP

(Abe)
40%

30%

20%

10%

0%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018

Figure 1.2 Passage rate of Diet legislation (%), 1980–2019

8 Takeo Hoshi and Phillip Y. Lipscy

the passage rate of cabinet-submitted legislation recover, and non-

cabinet legislation fell to historically low levels. The Abe government
maintained meaningful discipline vis-à-vis backbenchers despite its
large majorities.
There are also interesting puzzles related to the economic policies of
Abenomics. First, despite extremely expansionary macroeconomic pol-
icy, especially monetary policy, why did economic growth and inflation
remain low? The targeted inflation rate of 2 percent, which was sup-
posed to be reached quickly by 2015, was not achieved even five years
later. Economic growth remained below the target growth rates of
3 percent in nominal terms and 2 percent in real terms. Although
Japan may have escaped deflationary conditions, the recovery was
less impressive than many expected given the unprecedented size of
the macroeconomic stimulus.
Second, despite continued concerns about mounting government
debt, why was the government able to roll over the existing debt and
issue new debt with higher prices (i.e., lower yields) without a credible
prospect for fiscal consolidation? The second arrow of Abenomics
(flexible fiscal policy) was supposed to be fiscal expansion in the short
run combined with a clearly specified path for fiscal consolidation in
the long run. Fiscal expansion was implemented, but fiscal consolida-
tion proved more challenging. The consumption tax hike is a good
example. After the tax rate was increased from 5 percent to 8 percent
in April 2014, another tax hike from 8 percent to 10 percent was
planned for October 2015. It was postponed twice and only went into
effect in 2019.
Third, how was Abe able to implement some structural reforms in
areas such as agriculture and the labor market, which were character-
ized by entrenched resistance in the past? For example, Abe systemat-
ically undermined Japan Agricultural Cooperatives (JA), part of the
LDP’s traditional support base, while pursuing the TPP – eventually
enacted as the Comprehensive and Progressive Agreement for Trans-
Pacific Partnership (CPTPP) after US withdrawal – which included
significant reductions in agricultural protection (see Chapter 14).
Many LDP politicians feared a repeat of the 2007 upper house and
2009 lower house elections, when Ichiro Ozawa took advantage of
rural alienation with the LDP to guide the DPJ to major victories in the
countryside (Lipscy 2017). Why was Abe willing to gamble rural
support to pursue agricultural reforms? Conversely, why were reforms
The Political Economy of the Abe Government 9

less ambitious in other areas, such as climate change policy, promotion

of inward direct investment, policies to increase corporate entries and
exits, and measures to encourage fluidity of the labor market?

1.3 A New Japanese Political System

Abe’s government represents the culmination of political reforms in
Japan since the mid-1990s, which fundamentally altered the Japanese
political system. It is now appropriate to characterize Japan as operat-
ing under a new political system that represents a full transformation
from the 1955 system, which ended in 1993. The following character-
istics are defining features of this new political system.
First, electoral reform in 1994 shifted the incentives of Japanese
lower house politicians from particularism – the narrow targeting of
pork to organized supporters – to broad appeal to the Japanese median
voter. The consequences of these reforms are well known.1 Japanese
political leaders now face considerable electoral incentives to pursue
economic reforms that enhance macroeconomic growth and increase
the prosperity of Japanese households at the expense of traditional,
organized interest groups.
Second, bureaucratic scandals and administrative reforms since the
late 1990s have shifted political authority from traditionally powerful
ministries – such as the Ministry of Finance (MOF) and the Ministry of
Economy, Trade, and Industry (METI) – to politicians, particularly the
Cabinet Office of the Prime Minister (Estevez-Abe 2006; Takenaka
2006; Mulgan 2017). Expansion of the administrative capacity of the
Cabinet Office also elevated the authority of the prime minister vis-à-
vis backbenchers, who previously exerted influence in specialized pol-
icy areas (Schoppa 1991). The personnel of the Cabinet Secretariat
expanded by more than three times since 2000. Abe’s Cabinet
Secretariat came to employ about 3,000 officials, a doubling since the
Koizumi years and comparable to the staff of the Ministry of Foreign
Affairs (see Chapter 2).
Third, the Japanese upper and lower houses are governed by
distinct electoral rules, which creates significant challenges for
Japanese political parties. The upper house is still largely governed
by the traditional SNTV-MMD (single nontransferable vote, multi-
member district) system, with a strong rural bias due to an emphasis
on prefectural districts and the tendency for sparsely populated rural
10 Takeo Hoshi and Phillip Y. Lipscy

districts to become decisive, single-member districts. Furthermore,

the upper house has nearly co-equal authority, requiring a two-
thirds lower house majority to override its decisions. The need to
appeal to very distinct constituencies in each house contributes to
two patterns in recent Japanese politics that stymie policymaking.
The first is divided government or a “twisted Diet,” in which differ-
ent parties control each house. The second is intraparty conflict, in
which a party successfully captures majorities in both houses but
becomes internally divided. This incongruity proved particularly
challenging for the DPJ, which drew from a primarily urban support
base while incorporating Ozawa’s traditionalist approach to appeal
to rural areas (Lipscy 2017).
Fourth, prime ministers are critically dependent on high public
approval ratings in order to maintain party cohesion. The primary
leverage Japanese prime ministers can exercise vis-à-vis backbenchers
within their party is the threat of withdrawing official support during
national elections. This threat is not credible when the prime minister is
unpopular and hence unable to implicitly threaten an early election.
Japanese prime ministers therefore have strong incentives to maintain
their popularity with the general public. Abe maintained relatively
robust public approval ratings during his tenure, averaging slightly
below 50 percent according to polling by NHK (Nippon Hoso
Kyokai), in the same range as Junichiro Koizumi (51.4 percent), the
only other prime minister to enjoy longevity in recent years.2 All other
recent prime ministers had lower average approval ratings and stepped
down when their approval ratings sank to around 30 percent. This
contrasts to prime ministers under the 1955 system, who routinely
remained in power despite average approval ratings in the 30 percent
range, such as Kishi, Sato, Tanaka, and Nakasone. This creates an
additional impetus to support policies that appeal broadly to
Japanese voters.

1.4 Taking Advantage of Japan’s New Political Institutions

Japan’s institutional transformation began in the 1990s, but Abe is the
first prime minister who established a stable governance structure that
has some chance of replication by future prime ministers. As Abe
himself noted, “it is true that prime ministers are in a strong position
under a single-member district electoral system. However, it is not
The Political Economy of the Abe Government 11

unconditional strength: if prime ministers were unconditionally power-

ful, my first administration would not have ended in one year.”3
Two previous governments that emerged after the 1990s appeared to
mark the beginning of a new era in Japanese politics: the 2001–2006
Koizumi government and the 2009–2012 DPJ government. Koizumi’s
tenure exhibits some similarities to Abe’s. His rule was buoyed by
strong public approval, and he implemented consequential changes,
including transportation sector reforms and the privatization of the
postal savings system (Kabashima & Steel 2007; Reed, McElwain &
Shimizu 2009). However, his leadership style, which relied on personal
charisma and sought to “destroy the LDP,” was defined by internal
conflict within his own party. Koizumi’s approach could not be repli-
cated by subsequent prime ministers. This included Abe himself, who
succeeded Koizumi in 2006 only to become the first in a string of six
prime ministers who lasted for only about one year each.
The DPJ came to power in a historic lower house victory in 2009,
marking the first decisive electoral defeat of the LDP by an opposition
party (Lipscy & Scheiner 2012; Kushida & Lipscy 2013; Funabashi &
Nakano 2017). However, the DPJ struggled to implement meaningful
reforms due to persistent internecine conflict and resistance from the
Japanese bureaucracy. The party also lost control of the upper house in
2010, making it difficult to pass legislation in a “twisted Diet.” In other
words, prior to Abe, Japan’s new political institutions were not associ-
ated with a clear and replicable governance model.
The Abe government broke this trend. Unlike Koizumi, Abe ruled as
a political insider, largely eschewing public attacks on his own party or
the bureaucracy. Abe also maintained party discipline and cohesion
despite the LDP’s large majorities in both houses of the Diet, a marked
contrast to the Koizumi and DPJ governments. A popular view of
the second Abe government is that it stood out for competent manage-
ment and discipline centered on a core group of officials in the Cabinet
Office, particularly Chief Cabinet Secretary Yoshihide Suga.4
However, many of the governance practices implemented under Abe
were practical measures that could be adopted by future governments.
This section briefly reviews what Abe government officials believe they
did differently compared to previous Japanese administrations.5
The second Abe government was supported by a relatively stable core
group of close advisors surrounding the prime minister. Abe brought
back many officials from his first tenure, most notably Yoshihide Suga,
12 Takeo Hoshi and Phillip Y. Lipscy

Hiroshige Seko, Katsunobu Kato, and Seiichi Eto among politicians and
Takaya Imai, Eiichi Hasegawa, Hiroshi Suzuki, and Motoya Nakae
among former bureaucrats.6 Suga and Imai played a particularly out-
sized role as respectively chief cabinet secretary and executive secretary
to the prime minister. These officials developed close relationships with
Abe during his first administration and remained loyal even after Abe
resigned (Hoshi 2014, p.176). Imai attributes his close relationship with
Abe in part to the fact that his uncle had worked directly under
Nobusuke Kishi, Abe’s grandfather, when the latter was minister of
commerce and industry under the Tojo government in 1941 (Oshita
2017, pp.52–53).
These close advisers to Abe note that the lessons from the first Abe
government in 2006–2007 were critical in shaping their management
style during Abe’s second tenure as prime minister. Abe himself has
publicly stated that learning from the mistakes of his first tenure was
key to his second prime ministership.7 Furthermore, many of the
reforms that would be implemented under the banner of Abenomics
after 2012 were developed within the prime minister’s Council of
Economic and Fiscal Policy (CEFP) during Abe’s first tenure as prime
minister (Chapter 5).

1.4.1 Managing Public Opinion

Officials close to Abe sought to manage public opinion to consistently
maintain the prime minister’s popularity at a high level. This included
initiatives to buoy Abe’s public approval (primarily by focusing on
economic reforms under the banner of Abenomics), a careful strategy
to time and selectively pursue policies unpopular with the general
public, and a media strategy that sought to minimize political fallouts
from negative news events. This focus on public approval reflected
perceived lessons from Abe I, during which Abe’s public approval
rating plummeted quickly, triggering internal discord within the LDP,
a major upper-house election loss, and Abe’s resignation.
Abenomics was designed by the Abe administration to enhance
macroeconomic performance and appeal to the reformist inclinations
of the general public. Abe saw Abenomics as a defining feature of his
government and credited his success in enacting controversial legisla-
tion, such as the secrecy and security laws, to strong public support
underpinned by his economic policies. Suga similarly characterized the
The Political Economy of the Abe Government 13

Abe government as using its high public approval rating to make

progress on diplomatic and security reforms that could cause tempor-
ary unpopularity (Oshita 2017, pp.13–14, p.182). Officials close to
Abe note that Abe’s personal priority always remained his long-
standing ambition to “escape from the postwar order” by enacting
constitutional reform, but this was seen as an impossibility without
successful economic measures to maintain strong public approval
(Tazaki 2014, p.135).
Abe’s team also explicitly sought to manage the prime minister’s
popularity by sequencing and timing legislation so that unpopular or
controversial laws were followed by more popular initiatives. Suga is
said to have predicted that passing the Secrecy Law in 2013 would lead
to a roughly 10 percent hit to the prime minister’s approval rating.
However, the legislation was deemed sufficiently important and pro-
posed after upper house elections to minimize electoral impact.
Similarly, after seeing the prime minister’s popularity decline after
controversies surrounding security legislation enabling collective self-
defense, Imai coordinated a pivot back to popular economic reforms
under the banner of the “second stage” of Abenomics and “dynamic
engagement of all 100 million citizens” (Oshita 2017, pp.180–181,
p.241). Furthermore, Abe’s nationalist credentials may have contrib-
uted to the resilience of his public approval ratings: Chapter 3 suggests
that Abe’s core conservative supporters were willing to return to the
fold even after temporary drops in popularity due to controversies and
scandals.
Another perceived lesson of Abe I was the failure to manage the
media and news cycle. Abe’s advisors concluded that the prime minis-
ter’s popularity suffered during his first tenure due to poor media
management. They inferred that attempting to manage scandals
through the resignation of officials is often counterproductive, as it
immediately leads to questions about the prime minister’s judgement in
making the initial appointment. During Abe I, the pattern was set early
when Masaaki Honma resigned as chairperson of the Research
Commission on the Tax System in December 2006 due to a personal
scandal. Abe’s government was then beset by successive scandals and
resignations, which dominated the news cycle and diminished the
prime minister’s popularity. In his second government, Abe reversed
this approach and resisted calls for resignation of his ministers and
lieutenants even during major scandals, except in exceptional cases
14 Takeo Hoshi and Phillip Y. Lipscy

where it was judged that the official would not be able to survive
(Tazaki 2014, pp.76–77).
The second Abe government also sought to exert direct control over
the media cycle. Responding to scandals through indecision and even-
tual resignation, as was the pattern under Abe I, meant the media
would spend many days covering new developments. Abe’s advisors
sought to limit media coverage to no more than one or two days by
acting decisively: either firmly resisting resignation and moving on or
opting for immediate resignation. In cases where multiple resignations
were necessary, Abe sought to announce them simultaneously to limit
the duration of negative media coverage (Tazaki 2014, pp.84–85). The
Abe government “proved much better at dealing with the media,
including how to limit scandal coverage” (Carlson & Reed 2018).
Another change was elimination of burasagari interviews. These
were brief, daily interviews that created opportunities for the media
to ask (often inconvenient) questions directly to the prime minister. The
burasagari interviews were canceled by the DPJ government following
the Great Eastern Japan Earthquake of 2011. The media hoped the Abe
administration would revive the practice, but Abe did not, and the TV
media lost the ability to attach the prime minister’s face to negative
stories. Instead, the soft-spoken and careful Suga became the public
face of the government to the media. Suga maintained careful message
discipline, claiming to follow Colin Powell’s dictum that “reporters
have a right to ask questions, and I have a right not to answer them”
(Hoshi 2014, p.177).
According to Tazaki (2014, p.91), Abe referred to the cancellation of
burasagari interviews as “the only meaningful achievement of the DPJ
government.” The elimination of burasagari interviews also improved
discipline within the cabinet by making it less feasible for bureaucrats
or politicians to work around the formal decision-making process by
going straight to the prime minister and getting him to publicly commit
to a policy direction in front of the media. This was an important
problem in the DPJ government, in which prime ministers often over-
turned policy in media interviews without careful consultation.
Abe also ended the previous practice of scheduling prime minister
interviews according to a set schedule that rotated between NHK and
the private media. Instead, he responded only to interview requests he
wanted to field, which led to a disproportionate share of interviews
granted to the relatively sympathetic and conservative Yomiuri and
The Political Economy of the Abe Government 15

Sankei (Tazaki 2014, pp.86–88). Furthermore, the LDP under Abe

sought to shape narratives on social media by supporting the
“Jiminto [LDP] Net Supporters Club (J-NSC),” a volunteer group of
over 19,000 members that promotes narratives supportive of the gov-
ernment and critical of opposition parties.8
The Abe government’s media strategy, though perhaps effective at
buttressing his popular approval, came under sharp criticism by jour-
nalists and advocates of press freedom. For example, the government
was criticized for threatening to invoke the Broadcast Law and Radio
Law to silence broadcasters that did not conform to the government’s
interpretation of political impartiality (Fackler 2016; Kingston 2016).
The Abe government and its conservative allies were particularly out-
spoken about media coverage of historical memory issues, such as
reporting on the comfort women issue by the Asahi Shimbun
(Chapter 17). Japan’s World Press Freedom Index ranking fell from
an all-time high of eleventh place in 2011 to sixty-seventh by 2019
(Reporters Without Borders 2019).

1.4.2 Relations with the LDP and the Bureaucracy

Close advisors to Abe claim that they were politically inexperienced
during Abe I and had limited ability to manage the internal politics of
the LDP. This meant Abe was blindsided by internal discord that
sought to elevate Fukuda as an alternative as the prime minister’s
popularity diminished. In contrast, during Abe II, his advisors sought
to keep a careful pulse on the party and nip any signs of anti-Abe
movements in the bud. One important aspect of Abe’s strategy in
managing LDP backbenchers was the use of lower house elections as
a disciplinary mechanism.
Abe strategically called lower house elections in 2014 and 2017,
enhancing his credibility vis-à-vis potential political opponents within
his own party and the bureaucracy. For this purpose, the 2014 election
was critical. An important rationale for Abe calling the 2014 election
was an internal challenge from LDP politicians supported by the
Ministry of Finance, which opposed Abe’s proposed postponement of
a consumption tax hike. Although they chose not to publicly frame the
election in these terms in order to maintain an impression of party
unity, there was serious concern that the government could be brought
down in the absence of an election. Abe and Suga feared that LDP
16 Takeo Hoshi and Phillip Y. Lipscy

opponents would withhold support from the enabling legislation for

consumption tax postponement, threatening the survival of the prime
minister (Tazaki 2014, pp.9–10, p.17). By calling the election and
running on postponing the consumption tax, Abe secured a clear public
mandate and strengthened party discipline.
Although the specific context was different, the strategy echoed that
of Koizumi in 2005. Koizumi faced opposition from “postal rebels” –
those opposed to privatization of the postal system – within his own
party. In response, Koizumi expelled the rebels and dissolved the lower
house, securing a strong mandate for reform through electoral victory.
Both Koizumi and Abe silenced their internal opponents by demon-
strating their willingness to call elections, and in turn, the credibility of
this threat hinged on the prime minister’s public support. This strategy
also reflected a perceived failure of Abe I, when the prime minister
readmitted the postal rebels who had been expelled from the LDP by
Koizumi. This led to criticism that Abe was reversing Koizumi’s pol-
icies despite inheriting his large lower-house majority from the 2005
postal election. This provided an additional rationale under Abe II to
call lower house elections when the prime minister announced signifi-
cant policy shifts.
Abe also sought to improve coordination at all levels – within the
Cabinet Office, within the LDP, and with bureaucrats. During Abe I,
Abe appointed relatively young and ambitious politicians, such as
Yuriko Koike and Hiroshige Seko, to special advisor roles. However,
this proved dysfunctional: the special advisors lacked formal legal
authority over bureaucrats and had limited sway over backbenchers
in the LDP, limiting their influence (Tazaki 2014, pp.52–53). There
was no coordination mechanism among the special advisors, which led
to communication problems. Under Abe II, all of Abe’s immediate
advisors convened daily in a meeting for twenty minutes to coordinate
strategy and perspectives: such a coordination mechanism did not exist
under Abe I or the DPJ government, leading to scattered decision-
making and inadequate message discipline. In addition, to enhance
coordination between the prime minister and the Diet, officials close
to Abe, such as Seko, actively participated in the Diet Affairs
Committee in order to exchange information about priorities and
coordinate legislative strategy with LDP Diet members.
The Abe government also sought to incorporate lessons from failures
of the preceding DPJ government. Under the DPJ, politicians close to
The Political Economy of the Abe Government 17

the prime ministers had become special advisors, playing a role trad-
itionally occupied by executive secretaries. Abe saw this as an ineffect-
ive strategy, as politicians had a strong incentive to take credit for their
accomplishments, rather than working behind the scenes in support of
the prime minister. Abe thus primarily relied on Imai, a METI bureau-
crat, to play this role.
The Abe government also exerted strong control over the bureau-
cracy. Abe strengthened personnel authority over the bureaucracy and
centralized authority under the prime minister, particularly through the
creation of the Cabinet Bureau of Personnel Affairs in 2014 (Chapter
2). Abe made a point of putting the bureaucracy on notice in
January 2013, within weeks of taking power, by overturning a long-
held precedent that the Japanese Supreme Court appoints its own
justices, exerting his authority under the constitution to reject the
court’s preferred appointee (Tazaki 2014, pp.63–64).
Abe personally credited Suga with making calculated personnel deci-
sions to maximize political control and minimize bureaucratic resist-
ance. Even before he became chief cabinet secretary, Suga had
established a reputation as an effective manager of Japan’s traditionally
powerful bureaucracy. Suga published a book while the LDP was still
out of power, subtitled “A Politician’s Resolution: Spur the
Bureaucrats to Action,” in which he criticized the DPJ’s handling of
bureaucrats and laid out his principles for bureaucratic management
(Suga 2012). Suga notes that information asymmetries are a crucial
problem for the cabinet in dealing with the bureaucracy. For example,
he notes that bureaucrats often act like their hands are tied by local
governments or constituents when they are in fact pressuring localities
to adopt their preferred positions (Hoshi 2014, p.171).
The Abe government sought to overcome these information asym-
metries by expanding the independent capacity of the Cabinet Office,
cultivating close allies of the prime minister among the bureaucracy – in
no small part through control of personnel decisions – and appointing
former bureaucrats like Imai and experienced politicians like Suga to
key positions. For example, the 2013 appointment of Yuji Sato as
commandant of the Japan Coast Guard from within the ranks of the
agency broke a long-standing norm of appointments of career bureau-
crats from the Ministry of Transportation (Yamaguchi 2016, pp.100–
103). This signaled to the entire bureaucracy that their bureaucratic
turf was not secure, but the specific appointment came with a strong
18 Takeo Hoshi and Phillip Y. Lipscy

normative justification that was difficult to resist – that Japan Coast

Guard officers defending Japanese territory at the front lines should be
led by one of their own.

1.4.3 The Abe Model and COVID-19

Abe and his close advisors governed with a deliberate strategy that
sought to take advantage of Japan’s new electoral and administrative
institutions. These practices did not depend on any unique attributes of
Abe or his advisors and could thus plausibly serve as a model for future
prime ministers. Abe sought to maintain a high degree of public
approval by promoting popular economic reforms, timing unpopular
policies after elections to allow time to pivot back to popular issues,
and employing a media management strategy to limit critical news
coverage. Abe’s robust public approval ratings, combined with the
credible threat of calling early lower house elections in an electoral
system that emphasizes party label (e.g., Krauss & Nyblade 2005;
Reed, Scheiner & Thies 2012), diminished resistance from backbench-
ers within the LDP. Furthermore, the Abe government built on prior
administrative reforms by further consolidating authority in the
Cabinet Office. Practical mechanisms to coordinate policymaking
within and among the cabinet, the Diet, and the bureaucracy were
implemented to avoid the chaotic decision-making of prior administra-
tions, including Abe’s own.
Although the Abe model appeared to function effectively for much of
the prime minister’s tenure, the 2020 COVID-19 pandemic exposed
important shortcomings. In some respects, Japan’s response to
COVID-19 reflected strengths. The country initiated its response rela-
tively early, though the stringency of its measures lagged behind other
developed countries (Hale et al. 2020). Unlike populist leaders in the
United States and Brazil, the government relied heavily on scientific
experts like Shigeru Omi and Hitoshi Oshitani to orchestrate its
response. These experts emphasized measures that appear prescient in
retrospect, such as a cluster-based strategy through contact tracing,
elimination of high-risk situations for contagion – the so-called three
“Cs” of closed spaces, close-contact settings, and large crowds – and an
emphasis on cloth masks during a period when the World Health
Organization (WHO) and Western countries were discouraging their
use.9 Japan fared relatively well in terms of reported health outcomes:
The Political Economy of the Abe Government 19

Japanese COVID-19 cases and fatalities remained low in international

comparison, and there was no significant spike in excess deaths that
would suggest undercounting.
However, Abe’s response to COVID-19 was also characterized by
seeming indecision and hesitance. Shutting down the economy to
prevent contagion would reverse the macroeconomic gains of
Abenomics, which the prime minister saw as critical to his popularity
and legacy. The government faced constitutional restrictions that
foreclosed legally enforceable lockdowns. However, even accounting
for this, the government shied away from measures that could poten-
tially reduce economic activity, such as providing financial incentives
for businesses to stay closed. As his approval rating declined, Abe
attempted to stick to his standard playbook by doubling down on
Abenomics growth themes. This strategy may have backfired, as
initiatives to stimulate the economy, like the “Go To” travel cam-
paign to encourage domestic travel, cut against efforts to limit
COVID-19 contagion.
The Abe government also struggled to reach consensus on major
decisions, such as the scope of government stimulus and declaration
of a national emergency.10 Abe’s diminishing popularity under pan-
demic conditions reduced his leeway to threaten a snap election,
loosening his grip on his party and emboldening other powerbrokers
like Secretary General Toshihiro Nikai. The pandemic also elevated
the role of local governments in critical areas like testing and business
closures. Although Japanese prime ministers exercise strong authority
over the central government, local governments retain considerable
autonomy (Horiuchi 2010). This provided a platform for governors
like Yuriko Koike and Hirofumi Yoshimura to propose more strin-
gent measures and highlight shortcomings of the central govern-
ment’s response.11
Although Abe’s COVID-19 response did not create a health crisis, it
did create a serious public opinion problem for Abe. Most international
leaders saw their approval ratings spike as their countries responded to
the pandemic, but Abe’s approval ratings slid to the lowest levels of his
tenure.12 A majority of Japanese citizens disapproved of the govern-
ment’s COVID-19 response.13 Abe announced his resignation on
August 28, 2020, citing deteriorating personal health and apologizing
for “leaving various other policies still on the way to being realized and
the coronavirus epidemic at hand.”14
20 Takeo Hoshi and Phillip Y. Lipscy

1.4.4 Idiosyncrasies and Good Fortune

Although the Abe government took advantage of Japan’s political
institutions and governed with a calculated strategy to remain in
power and achieve policymaking success, it also benefited from several
idiosyncratic factors. While Abe and his close advisors responded to the
perceived failures of prior governments, it is less clear that they would
have been able to stay in power as long as they did without other
supportive factors (see Chapter 4). This suggests that while Abe’s
model of governance may be replicable, the same degree of legislative
productivity and longevity may prove elusive for his successors.
Abe’s tenure was characterized by opposition collapse, most import-
antly the disintegration of the DPJ. This gave Abe room to selectively
pursue policies unpopular with the general public, such as nuclear
restarts and the Antiterrorism Special Measures Law, without great
fear of electoral consequence. In fact, across most substantive issues,
the Abe government’s policy positions were less popular with the
public than those of most opposition parties (Horiuchi, Smith &
Yamamoto 2018). Opposition collapse gave Abe strong credibility in
calling lower house elections, in which the failure of opposition con-
solidation in single-member districts produced a large structural advan-
tage for the LDP. Although opposition failure reflects some structural
factors, such as the cross-cutting pressures of the lower and upper
house electoral systems, it is unlikely to remain a permanent feature
of Japanese politics.
Another factor that worked in Abe’s favor was the absence of major
international or domestic shocks that undermined Japan’s economy
during most of his tenure. Abe came to power in 2012, after the worst
consequences of the 2008 subprime crisis and 2011 Euro crisis had
subsided. Japan’s two largest trading partners, the United States and
China, were characterized by mostly stable, if somewhat sluggish,
growth from 2012 to 2019. Abe became the longest-serving prime
minister in Japanese history without having to face a major upheaval
like a financial crisis or natural disaster that seriously threatened
Japanese economic growth. The 2020 COVID-19 pandemic was argu-
ably the first serious test of his leadership.
Abe also benefited from the relative absence of major crises in foreign
policy. While the rise of China remains an important long-term chal-
lenge for Japan, Abe escaped serious diplomatic crises, such as the 2010
The Political Economy of the Abe Government 21

boat collision incident near the Senkaku/Diaoyu islands during the DPJ
government. North Korea’s aggressive development of nuclear weap-
ons and missile technology remained persistent challenges, but US
threats to unleash “fire and fury” against the regime in 2017 did not
materialize. The ascendance of US President Donald Trump, which
caused havoc in many Western capitals, was less disruptive for Japan:
Abe and Trump quickly developed a personal chemistry, and Japan
was credited with successful “Trump management” (Hikotani 2017).
Of course, these outcomes also reflect conscious policy choices by
Abe and his allies (Chapters 16 and 17). The opposition remains weak
in part because the LDP successfully painted the DPJ as solely respon-
sible for the Fukushima nuclear disaster, despite the fact that regulatory
deficiencies long predated the DPJ’s rule (Kushida 2014). Positive
external economic conditions do not guarantee strong economic per-
formance in Japan, as was seen most clearly in the 1990s. Under
a different prime minister, relations with President Trump may have
proven more difficult. Nonetheless, Abe clearly benefited from some
good fortune.

1.5 Assessing Abenomics

One of the purposes of this volume is to evaluate and assess the track
record of Abenomics. As we discussed at the beginning of this intro-
ductory chapter, Abenomics combined expansionary macroeconomic
policies (first two arrows) with structural reforms and industrial pro-
motion (third arrow). Four chapters of the volume (Chapters 6 through
9) discuss the macroeconomic policies of Abenomics, and six chapters
(Chapters 10 through 15) examine some key aspects of the economic
reforms. To provide a background to these chapters, this section briefly
examines how Abenomics was implemented and evolved over time.

1.5.1 First Arrow

As soon as the Abe administration started in December 2012, the
government began pressuring the BOJ to enhance monetary easing
more aggressively. Before the Abe administration started, major central
banks – including the Federal Reserve, the Bank of England, and the
European Central Bank – cut interest rates aggressively and embarked
on asset purchases at an unprecedented scale after the global financial
22 Takeo Hoshi and Phillip Y. Lipscy

crisis of 2007–2009. However, the BOJ was more tentative. It finally

did cut the policy rate to zero and started an asset purchase program of
35 trillion yen in “Comprehensive Monetary Easing” in October 2010,
but BOJ officials often downplayed the importance of monetary easing,
arguing that monetary expansion cannot solve deflation. In late
January 2013, within one month of the start of the Abe government,
the BOJ introduced the price stability target of 2 percent inflation rate
and open-ended asset purchasing until the price stability target was
reached.
After Haruhiko Kuroda replaced Masaaki Shirakawa as the new
BOJ governor in late March 2013, the BOJ introduced “Quantitative
and Qualitative Easing” (QQE) on April 4 and announced it would
double the amounts of monetary base, long-term JGB holdings, and
ETF holdings in two years. These measures were implemented to
achieve the target inflation rate of 2 percent within two years. The
BOJ declared that the policy “will support the positive movements that
have started to appear in economic activity and financial markets,
contribute to a further pick-up in inflation expectations that appear
to have risen, and lead Japan’s economy to overcome deflation that has
lasted for nearly 15 years” (Bank of Japan 2013, p.4).
The first arrow of Abenomics looked promising, at least initially.
Inflation expectations rose, the yen depreciated, and stock prices rose.
Careful economic analysis by Hausman and Wieland (2014) estimated
that the bold monetary policy under Abenomics should increase the
real growth rate by about 1.0 percent. The targeted inflation of 2 per-
cent within two years, however, remained elusive. When Hausman and
Wieland (2015) updated their analysis, they found that the VAT rate
hike in 2014 reduced consumption, and increased imports (the reason
being unclear) also hurt.
The BOJ continued the initial plan of QQE, except for an expansion
of its size in October 2014. Then, in February 2016, the BOJ introduced
the negative interest rate policy and started to apply a negative interest
rate (−0.1 percent) on a part of bank reserves. Many interest rates fell,
and commercial banks objected (as their interest margins were further
compressed), but the inflation rate did not increase very much.
In September 2016, the BOJ started to target the ten-year JGB yield
(initially at 0 percent) in addition to the negative short-term interest rate.
The BOJ also clarified the commitment to “inflation-overshooting,”
saying, “[The] Bank will continue expanding the monetary base until
The Political Economy of the Abe Government 23

the year-on-year rate of increase in the observed CPI (all items less fresh
food) exceeds the price stability target of 2 percent and stays above the
target in a stable manner” (BOJ 2016, p.3). When the VAT rate increase
from 8 percent to 10 percent in October 2019 was in sight, the BOJ
renewed its commitment to QQE, announcing that the “Bank intends to
maintain the current extremely low levels of short- and long-term
interest rates for an extended period of time, taking into account uncer-
tainties regarding economic activity and prices including the effects of
the consumption tax hike scheduled to take place in October 2019”
(BOJ 2018, p.1).
Even with the gradually escalated monetary expansion of the QQE,
the targeted inflation of 2 percent was not reached. Faced with the
COVID-19 crisis in early 2020, the BOJ turned to even more aggressive
monetary easing, much like other central banks in advanced econ-
omies. On May 22, BOJ Governor Kuroda and Finance Minister Aso
jointly announced they would do “whatever it takes” to cushion the ill
effects of the pandemic on the Japanese economy.15 With the sharp
economic downturn, achieving the inflation target of 2 percent became
seemingly impossible.
Why the super-expansionary monetary policy under Abenomics for
seven years was not successful in achieving the inflation target is a great
puzzle. The question is taken up in Chapters 6 and 7 of this volume.
One success of Abenomics monetary policy was depreciation of the yen
(or correction of over-valuation of the yen during the previous years).
Chapter 8 examines the implications on exchange rate changes on the
competitiveness of Japanese industries.

1.5.2 Second Arrow

The second arrow of Abenomics was called “flexible” fiscal policy,
which envisioned fiscal expansion when there is a demand shortage
while being prudent in the long run. Since the demand shortage was
considered to be a serious issue when Abenomics started, one of the first
policies of the Abe government was to put together a supplemental
budget that exceeded 10 billion yen as part of the announced
20 billion yen stimulus package of January 2013 (Ito & Hoshi 2020,
pp.232–235). Unlike monetary policy, the fiscal expansion of
Abenomics was not a departure from existing policy. Japan’s fiscal
policy had already turned expansionary right after the global financial
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