Abe's Bold Moves

Len Edwards on what Abeonomics could mean for the Japan-Canada relationship.
By: /
April 17, 2013

Over the past two months, some unusual news reports have been coming out of Japan. In a country renowned for its measured, cautious decision-making, something revolutionary seems to be happening.

The LDP government, led by Prime Minister Shinzo Abe, has taken some remarkably bold measures in an attempt to free the country from two decades of economic stagnation. While Japan is still the world’s third largest economy, its standing as a global player, influence, and self-confidence have been in decline for many years, a matter of concern to Canada and many other long-standing friends.

Canada needs to make it clear to Tokyo that we are pleased with these significant new moves to revitalize the Japanese economy. This is not just a case of congratulating for congratulations sake (although a little of that is always good in international affairs, especially when dealing with the Japanese who normally appreciate and remember such gestures). 

It is because Canada stands to gain significantly from a rebounding Japanese economy, not only through enhanced bilateral trade and investment, but because a stronger Japan will lift all boats in the Asia Pacific, a region Canadians will be making an increasing share of their living in the coming decades.

A stronger performance from Japan will also give the global economy a badly-needed boost as Europe continues to falter, and the U.S. and Chinese economies face their own headwinds.  

Finally, a revitalized Japan is good for the geostrategic evolution occurring in the Asia Pacific region. Japan’s new strength will better complement China's rise, and should help preserve the stable security environment in the Asia Pacific, which, since the end of the 1970’s, has served as the essential underpinning for the region’s robust economic growth and rising standards of living.

Canada’s support of Japan’s efforts, joined with that of other friends and partners – particularly the United States (and including China) – are also important for another reason: the success of this long-awaited economic initiative by a Japanese government is not guaranteed.  Encouragement is needed.

Some skeptics have cautioned over the past weeks that Japan may have left it too late to pull off a reversal of fortune. They suggest that the culture of deflation is so embedded, and the economy so deeply flawed structurally, that even these strong steps, while enjoying some early traction, will ultimately fail to achieve the intended results.  The government’s debt load of about 220 per cent of GDP is increasing as a result of the fiscal stimulus. Some see this as a ticking time bomb.

The Prime Minister’s ambitious set of initiatives – predictably given the moniker of “Abenomics” – has three policy dimensions: monetary, fiscal, and structural adjustment.

The monetary moves unveiled on April 4 by the new Governor of the Bank of Japan, Haruhiko Kuroda, have been especially bold.  Through some radical steps (for Japan) in monetary easing, he and Abe hope to rekindle inflation in the Japanese economy by essentially doubling the money supply, shooting for a 2 per cent inflation target in two years. Investors and consumers will be motivated to spend by knowing that prices are going to be higher the longer one waits, not lower as under today’s deflationary scenario.

Judging from extent of the sea change in the Bank’s policies, and the fanfare it has generated, Kuroda understands the importance of exceeding expectations when it comes to affecting market behaviour. The announcement has further driven down the value of the yen, which will stimulate exports and production, as well as increase wages and domestic spending.

More conventionally, the government’s 10.3 trillion yen (about $104 US billion) fiscal stimulus package in January is centred on infrastructure projects (the usual practice in Japan) and promoting private investment. It is hoped this will have a short-term effect of boosting GDP growth by 2 per cent, although how efficiently it is spent will be crucial.  This will be a challenge, since such spending in Japan has more often catered to domestic political requirements than responded to national economic objectives.

While Kuroda’s moves have been the “headliners”, complemented by Abe’s solid fiscal stimulus, the greatest challenge for Japan's government lies in the area of structural reform. 

This is where the most complexities lie, where deeply embedded business and economic practices have to be changed, and where vested interests will generate strong resistance, just as they have in the past. Yet this is where Japan’s success in revitalizing its economy will ultimately be determined.  Monetary and fiscal policy will bring short-term progress, but only structural change will ensure that a resurgent Japan becomes a longer-term reality.

And this is where Canadian interests come into play again.

Prime Minister Abe has embraced trade negotiations as one means of driving internal structural change.  Since the Meiji period, governments have used foreign pressures to force change at home – the Japanese expression is “gaiatsu”.  Abe seems to be reaching once again for this tried and true formula.

Abe’s trade policy agenda includes pushing ahead with talks launched by his predecessor, including one with Canada and an ambitious negotiation with the EU.  But in mid-March he decided to take Japan into the tougher Trans Pacific Partnership (TPP) talks as well.  This will increase pressures for substantial change, deregulation, and the opening of many areas of Japan’s economy, especially in agriculture. Polls show that 60% of Japanese approve of the move.

As of this writing, the United States has just concluded an agreement with Japan that paves the way for U.S. approval of Japanese entry into the TPP negotiations. Canada, New Zealand, and Australia have still to give their formal approval, which they will now that Washington has signed on. 

On the surface, this should all be good news for Canada.  We can now negotiate with Japan bilaterally and regionally, using both negotiations to get the best outcomes.  We will also be negotiating with Japan in a third venue: the soon-to-be-launched Plurilateral International Services talks in Geneva. The opportunities for improving conditions for Canadian business in Japan (and making Japan a closer partner in our own economy) have never been greater.

But there is one major challenge. Our bilateral negotiations are not the only game in town for the Japanese.  The Japan-EU negotiation, and the now the TPP, will make it harder to get and hold Japan’s attention.

This suggests we must seek to complete our bilateral deal quickly. Canada will need to keep the momentum up on these negotiations.  This is also in Japan’s interest: if they put this agreement to bed quickly, they can move on to the big stakes elsewhere. But if the months pass with little progress, our bilateral negotiation could recede in importance for both sides.  This would be a pity.

Canada’s political and business leadership, starting with Prime Minister Harper and his senior ministers, must be active with their Japanese counterparts, pressing for an early bilateral agreement, and for success at all our negotiating tables. The role of Canadian business is especially important given the support that Japan’s business leaders have given to Abe’s trade initiatives.

And on the broader plane Canadians should encourage Prime Minister Abe and his Japanese allies in both the public and private sectors to make the tough but critical decisions needed to re-vitalize their economy, so that Japan can resume its place as a dynamic and positive force in the regional and global economies.

Canada’s own economic future will depend in some part on it.

Also in the series


Building Bridges

Canada doesn't need to choose between strengthening relations with either China or Japan says James Manicom.

The "Only Choice"

Atsushi Tago and Srdjan Vucetic compare the Canadian and Japanese F-35 decisions.

Common Values, Challenging Differences

Gerald Wright on the past, present, and future of the Japan-Canada relationship.

A New Energy Relationship

Kay Tsujimoto on why fossil fuels could energize the Canada-Japan relationship.

No Time Like the Present

Sadaaki Numata on why Japan and Canada need to concentrate on closing a free trade deal.

Driving the Partnership Forward

David Worts on why eliminating the tariff on auto imports from Japan to Canada will be good for both countries.


Kathleen Sullivan on why agri-exports can't be left out of a Canada-Japan free trade agreement.

Walking the Free Trade Talk

Julian Dierkes on why Japan presents an opportunity to turn free trade rhetoric into reality.

Business Interests

The Japanese market represents a great opportunity for Canada says Milos Barutciski. Canadian business needs to seize it.

The Promise of an EPA with Japan

Perrin Beatty makes the case for Canada to focus on negotiating an ambitious Economic Partnership Agreement with Japan.

Economic Ties

Canada's economic relationship with Japan, the third largest economy in the world, is an important one – and will become only more important should the two countries agree on a free-trade deal.