Prime Minister Shinzo Abe’s third administration got under way on December 24 on the heels of a sweeping victory by the ruling Liberal-Democratic Party (LDP) in the lower house elections. But the positive effects of “Abenomics”—Abe’s program to rejuvenate the nation’s troubled economy—have so far been rather limited: a sudden weakening of the yen has adversely affected the economy, and an additional 2 percent consumption tax hike, originally planned for October 2015, has been postponed, leading some quarters to take a pessimistic view of the government’s fiscal restructuring scheme. In an exclusive interview, journalist Yoshiko Sakurai asks Abe how he plans to overcome these challenges and attain his stated goals.

　　　　　Sakurai: First of all, please accept my congratulations on your party’s landslide victory. The LDP won 291 seats and the junior coalition party Komeito 35 seats, together accounting for more than a two-thirds majority in the 480-seat lower house of the Diet. Behind such a significant victory, I believe, is the nation’s earnest hope that under a stable government a number of critical issues will be resolved. Now that you have won this mandate from the people, I sincerely hope you will be able to tackle these issues with even greater resolve than before—issues such as coping with the growing Chinese threat, enacting security laws regarding Japan’s right to collective self-defense, revising the post-war “peace” constitution, and implementing various reforms designed to bring about vigorous economic growth. Particularly vital, I believe, are your efforts to spread the benefits of Abenomics farther and more widely across Japan.

　　　　　Prime Minister Abe: First of all, the economy clearly is the most important factor in enhancing Japan’s national power. Abenomics, which got off to a start in 2012, is still a work in progress. In terms of promoting employment, however, we have already created one million new jobs through our new policies. As for the nature of those jobs, 100,000 more jobs with benefits were created in the July-September period this year than the same period last year. There still may be many workers who are unable to get the feel of a real economic recovery when it comes to wages. However, as more companies implement further pay increases in 2015 as expected, I am confident that many more people will come to understand that our economic policy is in the process of bearing fruit and is without question headed in the right direction.

　　　　　Sakurai: During the recent meeting at the prime minister’s office with business and labor leaders, you strongly requested all members of the business community to “exert your full efforts in raising wages next spring.” Your request drew a positive response. If the requested wage hikes materialize, the prospects for economic recovery will be considerably brighter, won’t they?

　　　　　Abe: Yes… In reaching an agreement between the business and labor representatives at the meeting, I specifically urged those present to take into consideration several matters that I think are crucial. One of my requests was aimed at businesses that are achieving high profits thanks to a weaker yen. I asked them to give sufficient consideration to subcontracting companies suffering from the sudden rise in the cost of raw materials, making it possible for medium and small-sized companies to equally enjoy the benefits of a weaker yen.

　　　　　Sakurai: Regarding the value of the yen, some people are saying there is more harm than good when the yen gets this weak. In fact, more than a few of them are concerned about the future of our economy if the yen should be further weakened—say, to the level of 130 yen to one US dollar. What is your opinion of a weak yen, Mr. Prime Minister?

Japanese Manufacturers Are Coming Home

　　　　　Abe: Of course, a weak yen and a strong yen each has its own merits and demerits. Too weak a yen does have its own drawbacks, but there is no reason why the yen can get back to the excessively strong position it reached under the previous DPJ administration. Japan’s economy was worn out by too strong a yen at the time, with industries and consumers both suffering. In order to not lose their international competitiveness, Japanese industries—such as automobile, semi-conductor, and consumer electronics manufacturers—left Japan one after another, relocating their manufacturing bases overseas. As a result, many of their workers lost their jobs, and the government suffered the misfortune of losing significant tax revenues. However, the foreign exchange rate has now finally begun to be brought under control, starting to benefit our industries. In a major turn of events, for instance, Toshiba, which once had to close down four of its domestic production facilities, is now investing 300 billion yen [roughly US$ 2.5 billion] in a production line in Yokkaichi City, Mie Prefecture, construction having begun in September. Toshiba’s management has made a very important administrative decision aimed at building factories in Japan, hiring Japanese workers, and paying taxes in Japan. The DPJ administration left a high yen and deflation unattended, compelling our manufacturers to desert Japan one after another almost as though they were competing to see who could get out of the country faster. We are proud that our administration has been able to change this adverse situation. I see more Japanese manufacturers now taking steps to return to Japan. Not everything about moving production bases overseas proved rosy. In the first place, not all companies were fit to move overseas. Major corporations were certainly able to rather easily seek shelter overseas, but not their numerous subcontracting companies. Lacking the financial resources to follow suit, many subcontractors were forced to close their operations. That was how bankruptcies increased—in proportion to the number of major Japanese corporations abandoning their domestic production bases. In 2012, before the second Abe administration was launched, bankruptcies in Japan averaged 1,000 per month, but we have since managed to reduce the number to 800, achieving a 20% reduction.

　　　　　Sakurai: There have been pluses like that, of course. On the other hand, medium and small-sized manufacturers, confronted by steady price increases in imported raw materials, have had a harsh reality to cope with, while consumers have been hard hit by the steadily increasing prices of food products across the board.

　　　　　Abe: Needless to say, I do realize it is most important for my administration to continue paying due attention to increases in raw material and food prices, making sure that strict measures be taken against the negative effects of a weak yen. Specifically, in order to help out smaller companies that have been squeezed by the weaker yen, this administration is instructing governmental financial institutions to extend low-interest loans while also requesting private financial institutions to grant moratoria on loans to companies that are hard-pressed with debts they are unable to repay. But of course there have been a number of positive effects of a weak yen as well, such as a steady increase in the number of visitors to Japan from abroad. Their number, which stood at some 8 million annually prior to the megaquake of March 2011, is expected to surpass the 13 million mark in 2014. This increase of foreign tourists, five million of them a year, has had a greatly positive impact on our economy. As these visitors extend their visits to various regions across Japan, they will significantly contribute to the local economies. After all, statistics show that foreign visitors spend some 100,000 yen (about US$850) per head more than their Japanese counterparts. An increase in foreign tourists due to a weaker yen is making up for the slump in consumption resulting from the falling birth rate and declining population. In April 2014, the so-called overseas travel balance, subtracting consumption by Japanese during overseas travel from what foreign visitors spend in Japan, moved back into a surplus for the first time since July 1970, when the World Exposition was held in Osaka. The balance had long been some 3 trillion yen in the red each year. While putting it in the black on an annual basis is not going to be that easy, if realized, its merits to our economy will be tremendous. Tourism can be a new and leading cash cow, additionally having a great potential for helping to revitalize areas outside of the major cities.

　　　　　Sakurai: While your administration is striving on the other hand to make the most of a weaker yen, how do you plan to tackle financial restructuring, which is another area of concern? Japan’s outstanding long-term debt, combining that owed by the national and local governments, already exceeds 1,000 trillion yen [approximately US$8.5 trillion]. Despite such huge borrowing, the government postponed an additional consumption tax increase, foregoing its original plans to increase the tax to 10% in October 2015. In the recent elections, you asked the voters whether or not they would approve of the postponement, and your administration in effect won that approval. Nevertheless, I believe the government has the responsibility to show the way to sound fiscal management. Personal financial assets in Japan are estimated to be approximately 1,654 trillion yen [US$13.8 trillion]. These assets are used to purchase government bonds, but the aggregate amount of national indebtedness is now getting close to two-thirds of the existing amount of personal assets. If the government continues to issue bonds at this pace, the total amount of its indebtedness will exceed personal financial assets in about ten years. The time for financial restructuring is now, I’m afraid. What measures are you planning to take as prime minister?

Ten Billion Yen Flowing out of Japan a Day

　　　　　Abe: We have shown our commitment to fiscal restructuring by significantly improving our “primary balance” (the net balance of government income and spending minus interest payments). As the first step, by fiscal 2015 we are seeking to achieve a 50% reduction of the 2010 primary balance deficit of minus 6.6% against GDP. We have further set a goal of moving the primary balance into the black by fiscal 2020. We are dedicating all of our efforts to achieve this goal.

　　　　　Sakurai: That has so far been a tall order to fill, hasn’t it? Do you think your administration can really accomplish this?

　　　　　Abe: Yes. Under my administration, the primary balance has improved by 7 trillion yen [US$58.4 billion] over the past two years, reducing the deficit against GDP by 1.5%. In this vein, therefore, Japan’s public finances have surely and steadily gotten better. In any case, without economic rejuvenation there will be no long-term improvement in the government’s financial health. Over the past two years, tax revenues have surpassed 50 trillion yen—8 trillion more than during the DPJ administration. As we strive to create a virtuous economic cycle and pull the economy out of deflation, I am earnestly hoping to further increase tax revenues while aggressively reducing waste. Through such measures, we are hoping to achieve both economic growth and sound fiscal restructuring.

　　　　　Sakurai: You are tackling a crucial issue that will greatly affect the nation, and I would very much hope that you are able to speak candidly to the nation as you carry forward your financial restructuring scheme. Switching the subject to your energy policy, the nation is looking forward to your leadership as concerns the restart of our nuclear power plants. Those plants that have passed an audit by the Nuclear Regulatory Authority (NRA), which sets the world’s most stringent safety standards, have shown that they are safe and they should be allowed to restart operations, I would think. Wouldn’t this also be a vital step towards rejuvenating the Japanese economy?

　　　　　Abe: I cannot agree with you more. Nuclear power plants that have met the NRA’s new safety standards are preparing to resume operations, while continuing their efforts to win the understanding of the communities around them. Because all of the 55 nuclear power stations across Japan have been shut down since the Fukushima disaster in March 2011, Japan has had to turn to drastically increased imports of additional fuels for thermal power generation, which means an additional 10 billion yen of our national wealth flowing out of the country every day. This has worsened our international trade balance while burdening our consumers through increased utility prices.

　　　　　Sakurai: You spoke earlier about some of the positive effects of Abenomics that are already beginning to show. I believe many people are also eagerly looking forward to a revision of the constitution. Your party won the recent general elections by a wide margin, but have simultaneously lost reliable allies as well who could have supported your efforts to revise the constitution. The conservative Party for Future Generations has been annihilated, retaining only two out of its 19 seats, while Your Party, led by Yoshimi Watanabe, was also decimated. Meanwhile, the number one opposition party, the DPJ, gained a few seats and the Japan Communist Party nearly trebled their seats (from 8 to 21). The Komeito Party, the LDP’s pacifist junior coalition partner, also increased its seats to 31, vowing to apply the brakes on the LDP’s efforts to revise the constitution. In that sense, the opposition and liberal forces in the Diet appear to have accumulated more power. Do you think the LDP will now require a more sophisticated strategy in putting together legislative measures concerning self-defense?

　　　　　Abe: As before, we will engage in thorough deliberations and keep up our efforts to keep the nation well informed. As for Japan’s right to collective self-defense, the coalition government of the LDP and Komeito reached a cabinet agreement last July on the limited exercise of our right to collective self-defense in order to protect the lives, property, and happiness of the people of our nation. I called the general election this time, fully expecting self-defense to be one of the major campaign issues. In fact, it was a leading topic in every TV debate. And the election results show that the parties of our coalition government, which endorsed the limited exercise of Japan’s right to collective self-defense, ended up winning more than two-thirds of the seats in the lower house. Backed by such public confidence, we will be discreetly going about preparing for the enactment of new laws pertaining to Japan’s security framework.

　　　　　Sakurai: I highly value as a major accomplishment the cabinet’s decision acknowledging the legitimacy of Japan exercising its right to collective self-defense—a departure from previous post-war administrations that had evaded their responsibility concerning international security. Viewed from a different angle though, there is the concern that we could fall into the dilemma of being forever forced to add to the so-called “positive list,” continuing to specify only what is permitted of our Self-Defense Forces in case of an incident or conflict. This could seriously affect the effectiveness of our forces. Instead of such an arrangement, wouldn’t it make more sense to replace the “positive list” with a “negative list” specifying only what is “not permitted” of our forces, making it possible for them to cope more effectively with contingencies? What do you think?

　　　　　Abe: In the first place, no one can fully predict what contingencies may arise. Any forces intending to invade Japan would try to circumvent the defense policies we have in place. To have a complete “positive list” that outlines “in this case, only this will be permitted of the Self-Defense Forces” plays into the hands of our adversaries, as you have indicated. What we should have in place are policies that are in line with what is generally accepted in the international community. In other words, “in accordance with international law, we will not do what is not permitted.” This would be what you have called a “negative list,” but we must keep in mind that Japan’s security policy is of course under certain constitutional restraints. With a full understanding of this relationship between our security policy and the constitution, I am hoping to implement legislation conducive to protecting the lives, property, and happiness of our people without fail.

Japan’s Economy No Longer Deflationary

　　　　　Sakurai: Yes, which again takes us back to the question of a constitutional revision. You have long stated that a revision of the constitution is your historic mission. Towards the realization of this goal, you had the national referendum law enacted under your first administration, and in your second administration managed to revise it, lowering the minimum voting age from 20 to 18. At a news conference immediately following the elections, you once again stated that a revision of the constitution is the “historic mission” of the ruling party. With the third Abe administration having just gotten underway, the expectation is that you will now take further steps toward a constitutional revision. May I ask what your thoughts are at this juncture?

　　　　　Abe: The first hurdle is the question of which of the articles of the constitution to amend—and in what fashion. Under the present circumstances, you cannot even propose a change to the constitution without winning the support of two-thirds of the members of both houses of the Diet. The government then must win the support of a majority of the voters in a national referendum. These requirements are very severe, but are mandatory in revising the constitution in Japan.

　　　　　Sakurai: When you first proposed a constitutional revision, I recall there was a period in which you talked about the need to first amend Article 96, which refers to “a concurring vote of two-thirds or more of all the members of each House…”

　　　　　Abe: In order to get the constitution back into hands of the people, it would seem that a referendum should be valued more highly than a vote in the Diet. But in fact, we cannot even propose an amendment without the support of more than two-thirds the members of both chambers. I honestly regard it as quite unreasonable that there is such a high hurdle, making it so difficult for the nation to vote directly on so important an issue.

　　　　　Sakurai: We have recently formed a national association in the private sector aimed at helping create a new Japanese constitution. We are planning to prepare a draft about the time of the upper house elections slated for 2016. Mr. Prime Minister, when and how do you envision implementing a revision of the constitution?

　　　　　Abe: It’s premature to say exactly when. However, even if we win a two-thirds majority in both chambers of the Diet, a subsequent rejection in a national referendum would close the book on our efforts for a constitutional revision. Therefore, in order to not let that happen, we must first of all make every effort to promote and deepen a nationwide discussion.

　　　　　Sakurai: In view of the harsh international circumstances surrounding Japan, there is no question about the need to revise our constitution at this historic juncture. I hope you will resolutely move further towards your goal, tackling these critical issues that have faced Japan throughout the postwar period. Also, 2015 marks the 70th anniversary of the end of the Greater East Asian War. I personally am greatly concerned that China’s propaganda campaigns on various issues related to the war will inevitably intensify. How do you plan to effectively counter China’s anti-Japan propaganda?

　　　　　Abe: I am confident that the international community appreciates the fact that, over the past 70 years, Japan has steadily walked the path of a peace-loving nation, making a major contribution to the development of Asia and the promotion of peace and democracy in the region.
　　　　　
　　　　　Sakurai: I believe what you just said was amply emphasized by Australian Prime Minister Tony Abbott in a joint news conference in Canberra in July 2014, when he remarked: “Give Japan a fair go. Japan should be judged on its actions today—not on its actions 70-odd years ago…”

　　　　　Abe: Exactly. Preparing for the 70-year anniversary in 2015, I will clearly state to the world the future path Japan is prepared to take. Together with like-minded nations in the international community, Japan must endeavor to make the Asia-Pacific region more peaceful, stable, and secure. Marking the 50th anniversary of the end of the last war, the Japanese government issued the “Murayama Statement,” and then the “Koizumi Statement” was issued ten years later on the 60th anniversary. On the occasion of the 70th anniversary, the Abe administration will outline its reflections on the last war, the progress that Japan has made over the past seven decades, and our plans to continue contributing to the Asia-Pacific region and the world. These thoughts will be incorporated into a new statement—the “Abe Statement”—that my administration plans to issue next year.

　　　　　Sakurai: In order for Japan to become a “normal nation,” I believe it is important that you as prime minister visit Yasukuni Shine annually, expressing the nation’s reverence for the spirits of those Japanese who died fighting for their mother country. I cannot help but hope from the bottom of my heart that you and your successors will visit Yasukuni each year—no matter how much undue criticism such visits may attract from nations like China and South Korea.

　　　　　Abe: I have not changed my mind about this matter in the least. I believe it is quite natural for anybody anywhere in the world to pray for the repose of the souls of those who gave their life for their country. In point of fact, it is a very natural and normal form of human behavior—something that all leaders of countries across the world do. I hope I will continue to have such a feeling of respect for the war dead forever.

　　　　　Sakurai: Rejuvenating the national economy, enhancing our national defense capabilities, and revising our constitution is the mission that has been entrusted to you, Mr. Prime Minister. I earnestly hope you will succeed in forming a long-term stable administration, and accomplishing the task of rebuilding our nation.

　　　　　Abe: Thank you for your encouragement. Speaking about economic rejuvenation, we have managed to develop an environment in which to create new jobs and increase wages and consumption, reaching a stage that allows one to feel Japan’s economy is “at long last no longer deflationary.” Because of that, I can promise that the economy will be in a position to allow us to raise the consumption tax to 10% without fail by April 2017, which in turn will allow us to further address the issue of financial restructuring. It would be quite irresponsible for us to say, like the DPJ used to, that Japan’s growth can no longer be expected. There is no turning back. We firmly believe Japan’s economy can and will grow further. Making sure the right economic policies are in place to ensure that growth is my responsibility.

(Translated from “Renaissance Japan” column no. 637 in the January 1-8, 2015 combined issue of The Weekly Shincho)