Perhaps no one in Asia is happier than Shinzo Abe and his ruling Liberal Democratic Party to see Republicans take over control of the U.S. Congress.
Japan’s conservatives tend to prefer their American counterparts, who favor national security and nuclear power ― not to mention a strong stance against China. For Prime Minister Abe, the prospect of Mitch McConnell running the Senate must seem like great news for U.S.-Japan relations and his own standing.
Not exactly. There are at least two snags awaiting Abe’s administration as Republicans measure drapes on Capitol Hill: a plummeting currency and the Trans-Pacific Partnership trade deal, which has stalled in large measure because of Japan’s reluctance to open up its agricultural and automotive sectors.
Friday’s dramatic move by Bank of Japan Gov. Haruhiko Kuroda to increase the central bank’s already massive bond purchases has driven down the yen to a seven-year low. While that’s good news for Japanese exporters, it also threatens to touch off a fresh currency war in Asia. China’s Xi Jinping is sure to bring up Japan’s beggar-thy-neighbor policies when wooing other Asian leaders at next week’s Asia-Pacific Economic Cooperation summit in Beijing.
The move could also cause friction with Washington. “Kuroda’s Halloween surprise smacks of currency manipulation, and the GOP has a track record of not taking kindly to competitive devaluations,” says Jeff Kingston, head of Asian studies at the Tokyo campus of Temple University. At the least, Congress is going to have a harder time browbeating China to boost its exchange rate when Japan is allowed to do precisely the opposite.
TPP puts Abe in a tough corner, too. There’s rising optimism that Republicans will give President Barack Obama the “fast-track” authority he needs to ratify the 12-member trade deal, which excludes China. The catch, though, is conservatives in Washington may demand that Japan go all-in.
Thus far Abe’s negotiators have been able to stall even on what might be called TPP-lite, involving only modest concessions on autos and agriculture, because it didn’t look like Obama would be able to clinch a deal in Washington. Republicans could remove that excuse ― and might resist giving Japan special treatment. TPP-lite could well be off the table soon.
“Problem is,” Kingston says, “this impinges on powerful vested interests that are well represented in Abe’s own party, so he will be on the hot seat on trade, while he’s also trying to finesse structural reforms” such as loosening labor markets, pulling more women into the workforce and strengthening Japan’s corporate governance.
Played right, pressure from the U.S. could be great news for Abe, who advisers say views TPP as a Trojan horse of sorts. Once bound by a signed agreement, Japan will in theory be forced to shake up inefficient sectors that have long been coddled by political patrons in the LDP. As Nicholas Smith, a strategist at CLSA in Tokyo, puts it, the trade pact represents potentially “a big step for a nation where rice farmers and other groups have long blocked efforts to lower import barriers.” Smith believes Abe’s ministers “are keen to get TPP done, and regard this as their chance.”
The question is whether the prime minister’s own party, which has long been financed by the farm lobby, will go along. Parliament members facing elections next spring will no doubt have misgivings. There’s also a view in Tokyo that Abe never really expected TPP to get through the U.S. Congress, and that he’s merely been feigning support to bolster his reformist bona fides. If that’s true, he’ll have a hard time keeping up the charade if the Republicans lift obstacles to a deal in Washington.
Abe would be wise to take on Japan’s “sacred cows” while he still has the approval ratings to do so. It would be an important down payment on boosting Japan’s competitiveness ― and keeping Japan’s erstwhile friends in Congress happy, too.
By William Pesek
William Pesek is a Bloomberg View columnist based in Tokyo and writes on economics, markets and politics throughout the Asia-Pacific region. ― Ed.
(Bloomberg)
