When Shinzo Abe took power in Japan in 2012, he warned of a country in crisis. The economy was stuck in a “bog of deflation”. Its security was threatened by a weakening US alliance and Chinese incursions into Japanese waters. After two decades of struggle, the nation’s confidence was in tatters.

Mr Abe vowed to solve those problems. He would build a strong Japan, he declared. But as he steps down after a record seven years and eight months as Japan’s prime minister, and hands over to his close lieutenant Yoshihide Suga, the sense of crisis is strikingly similar.

In 2012 Japan was struggling to recover from the Fukushima nuclear disaster, now it is wrestling with Covid-19. The virus threatens to tip Japan’s economy back into deflation. Chinese vessels are more active than ever around the disputed Senkaku or Diaoyu islands. And while Mr Abe did restore some national self-belief, it was fragile even before the postponement of the Tokyo 2020 Olympics.

With Mr Abe stepping down due to ill health, Mr Suga, 71, has vowed to pick up where he left off. But the former chief cabinet secretary said on Monday, as he accepted leadership of the ruling Liberal Democratic party, that the continuation of Mr Abe’s policies did not mean he would be beholden to party factions or existing personnel: “I want to form a cabinet of people with appetite for reform who will work to serve the public.”

The question is whether a Suga administration can pursue the Abe policy direction with the same resolve as the government it replaces. Mr Abe restored the LDP to power in 2012 after years in opposition and he had a loyal political base on the conservative right. His so-called Abenomics stimulus enjoyed early success and built political momentum. On top of all that he had Mr Suga — a master of backroom politics — to crack heads together and make his government work.

Animated population pyramid showing Japan's shrinking population

The new leader will start in a weaker position against the unpromising backdrop of the pandemic. One of Mr Suga’s first decisions will be whether to call a general election and seek an electoral mandate of his own: a test of his transformation from a dour but effective behind-the-scenes politician to inspiring national leader. Mr Abe’s departure has prompted a nostalgic surge in his approval ratings to 71 per cent, so the LDP would probably win, but polls show only modest enthusiasm for Mr Suga himself.

The LDP has united around Mr Suga as the best choice to tackle Covid-19 and Japan’s other challenges — but after years of domination by Mr Abe, the party is restless. “There is a competition for leadership within the party. That does not end with the choice of Mr Suga,” says one LDP member of the Diet, who voted for him in Monday’s leadership election. “Prime Minister Abe’s right-hand man was Mr Suga. The question is: who is Mr Suga’s right-hand man?”

Shinzo Abe is stepping down after seven years and eight months as prime minister © Tomohiro Ohsumi/Getty
One of his successor’s first decisions will be whether to call a general election © Issei Kato/Reuters

Seen by many as a stand-in, Mr Suga will initially be elected only to serve out the remainder of Mr Abe’s term as party leader until September 2021, so he needs quick results if he is to stay in power. Given his fearsome reputation, few in the LDP are currently willing to criticise him, but some doubt both Mr Abe’s programme — which has done little to revive Japan’s regions — and the ability of an unsmiling septuagenarian to sell it to the public.

“The most acute problem is the pandemic, and Japan’s government, in which Suga has had a central role as chief cabinet secretary, has botched its response,” says James Brown, a professor at Temple University in Tokyo. While Japan kept the number of Covid-19 cases lower than in Europe or the US, it vacillated over stimulus measures. Approval ratings for Japan’s virus response are low. Mr Suga’s first priority will be to get a grip.

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Next generation: Tomomi Inada

© AFP via Getty Images

Ms Inada, 61, was a protégé of Mr Abe who dropped out of contention for the party leadership after an unsuccessful spell as defence minister from 2016-17. With Mr Abe gone, however, the large conservative wing of the LDP will be looking for leadership and Ms Inada — a regular visitor to the controversial Yasukuni shrine — is one of a number of politicians who might channel their support.

Upholding Abenomics

Beyond Covid-19, the challenges facing Japan’s new leader are defined by Mr Abe’s legacy. Although he found no escape from the big social and diplomatic dilemmas of a declining population and a rising China, he did run an unusually stable and successful administration. Deflation was not cured, but Japan enjoyed full employment for a time, and while China is still a threat, Mr Abe renewed ties with the US and forged new links with India, Australia and south-east Asia. Without changing the big picture, Mr Abe cobbled together a kind of operating manual for a country in long-term decline.

The new prime minister should follow the Abe manual, says Heizo Takenaka, who cleaned up Japan’s banks and helped privatise the post office as a minister in the LDP government of former prime minister Junichiro Koizumi in the 2000s. “I think Mr Suga is absolutely right to maintain the framework of Abenomics. In a way Abenomics is just common sense: use monetary policy effectively, use fiscal policy effectively and create a strategy to foster economic growth,” Mr Takenaka says.

Line chart of Approval and disapproval ratings (%) showing How the popularity of Shinzo Abe's cabinet changed over time

As part of Abenomics, the Bank of Japan launched a massive monetary stimulus, buying as much as ¥80tn ($760bn) of government bonds every year in an effort to drive down long-term interest rates. Its balance sheet now exceeds 100 per cent of gross domestic product. Mr Suga has said he appreciates the BoJ’s efforts and will maintain the existing accord between the government and the central bank. That suggests easy monetary policy will continue, at least for the foreseeable future.

Abenomics also leaned heavily on fiscal policy. Although Mr Abe initially promised stimulus, consumption tax hikes in 2014 and 2019 choked off economic growth and pushed the economy into recession. Mr Suga caused a stir during his leadership campaign by saying that the country would need further consumption tax rises to pay for its ageing population. He later stepped back from that, saying there was no need to raise consumption tax for a decade, signalling that he will not rush to reduce Japan’s huge public debt, which will soon stand at 270 per cent of GDP.

Whereas Mr Abe got lukewarm reviews for the third part of Abenomics — structural reforms aimed at raising economic growth — they are much closer to Mr Suga’s heart. The incoming leader has a strong free market streak. His political identity was forged as an aide who helped on the 1980s privatisation of Japan Railways.

“When I was the financial services minister trying to clear up bad loans there was massive opposition,” Mr Takenaka says. “There were just a few younger politicians who backed me. One of them was Mr Suga.”

The new prime minister is famed for his ability to make Japan’s bureaucracy jump at his command — an important skill when pushing for change. “He’s reform-minded and he has a lot of ideas,” says Takeshi Niinami, chief executive of drinks maker Suntory, and a member of Mr Abe’s Council on Economic and Fiscal Policy. “Mr Suga will pick up one or two areas and execute on them.”

He is already dropping hints about what those areas may be. During his campaign, Mr Suga said Japan had too many regional banks, and talked about creating a government agency for digital policy. One of his longstanding campaigns has been an effort to force Japan’s three dominant mobile phone operators to cut their bills.

Lower corporate tax rates and reform of social security and labour laws are areas where business wants action. “The Abe administration had lots of big plans whereas chief cabinet secretary Suga will be very much focused,” says Mr Niinami. “Business leaders are anxious [that] maybe their interests are not in that focus.”

Chart shows annual change in consumer prices (%) showing Japan has not yet solved its deflation problem

US alliance the priority

Mr Suga has built a career on bullying Japan’s bureaucrats into changing their ways, but his international experience is limited. Allies say he puts the highest priority on the US alliance, is less hostile to China than some of his LDP colleagues and is likely to take a tough line on disputes with South Korea over compensation for forced labour during the second world war.

Mr Abe forged a warm friendship with US president Donald Trump. And Kenichiro Sasae, formerly Japan’s ambassador to the US and now head of the Japan Institute of International Affairs, says his greatest foreign policy legacy is the reinterpretation of the constitution to let Japan support US forces if they come under attack.

“We need to redouble our efforts, not just to make our relationship with the US more resilient but to make deterrence more balanced,” says Mr Sasae. “I think we need to increase our own defence infrastructure, including more capacity to hit back.” Another issue that will be high in Mr Suga’s in-tray is whether to acquire the capacity for a pre-emptive strike against a potential North Korean missile launch. Purchasing any kind of offensive weapon — even if it is for defensive purposes — is sensitive given Japan’s pacifist constitution.

Shinzo Abe addresses parliament as prime minister © Kim Kyung-Hoon/Reuters
Yoshihide Suga, formerly Mr Abe’s ‘right-hand man’ © Jiji Press/AFP/Getty

The new prime minister — Mr Suga will be formally voted into power by the Diet on Wednesday — is sure to maintain Mr Abe’s strategy of a “free and open Indo-Pacific” region, as a bulwark against the expansion of Chinese influence. But like Mr Abe, he will struggle to make any headway on Japan’s territorial dispute with Moscow, North Korea’s missile programme or its wrangles with Seoul over wartime history — all issues that have been on the table for generations.

Mr Suga’s biggest foreign policy challenge will be how to handle the rising tensions between Washington and Beijing over everything from trade to technology and Taiwan. Victory or defeat for Mr Trump in his November re-election campaign will shape the political environment, but every year the tension between a hostile security relationship and Japan’s flourishing economic ties with China grows deeper.

“As the confrontation between China and the US worsens in the years to come, there will be a kind of dilemma appearing in Japanese policy,” says Mr Sasae. Japan shares Washington’s concerns about Beijing, but it lives next door, while the US is on the other side of the Pacific. “We don’t want to go back to the days of the cold war,” says Mr Sasae.

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Faction-free politics

For Mr Suga to do anything on domestic or foreign policy, he must first set up a stable government. In the LDP leadership election, the party’s organised factions scrambled to back the winner in pursuit of influence and jobs, and Mr Suga won the backing of four out of the five largest. However, that should not be mistaken for deep-rooted support.

Next generation: Shinjiro Koizumi

© Bloomberg

The son of former prime minister Junichiro Koizumi regularly polls as one of the most popular politicians in Japan, although at 39 he still regards himself as too young for the top job, offering to back Mr Kono if he stood for the leadership. Married to a celebrity and known for his communication skills, Mr Koizumi, 39, does not want to be a figurehead at the top of the LDP, but if the party ever risked losing its majority it might try to use the environment minister’s popularity.

Waiting within each of the factions are ambitious politicians who would love to become Japan’s prime minister. Several of them decided to stay out of the leadership contest this time, fearing that challenging during Covid-19 could only backfire. Instead, they rallied behind Mr Suga, who is one of a small minority in the LDP who eschews factional politics. “It’s a paradox. The fact that he has no faction is part of what made him a good candidate,” says one LDP politician, but it could make it easier to turn on him if things go badly.

If Mr Suga does well as leader — winning a general election, tackling coronavirus and racking up high approval ratings — then the party will happily carry on supporting him. The political opposition is still weak and many in the LDP support an immediate general election to take advantage.

Shinzo Abe’s departure has prompted a nostalgic surge in his approval ratings among the public © Carl Court/Getty
But there has been criticism of the Abe government’s handling of the Covid-19 crisis © Issei Kato/Reuters

But while many of his colleagues fear Mr Suga’s ability to make or break their career, they also doubt his ability to form a lasting bond with voters. When times are hard, a promise to cut mobile phone bills may not have the same resonance as one of Mr Abe’s sweeping appeals to Japanese history.

Even if Mr Suga stays on track, rivals hope to contest next year’s LDP election, which will include a full vote of regional party members. Mr Suga is six years older than Mr Abe and he could be the last of Japan’s baby-boomer generation to run the country. Among the candidates who stood aside this time are Taro Kono, the ambitious 57-year-old defence minister, and a plausible leader of the next generation.

“Next year will be a full-spec [leadership] election,” says one LDP politician, a member of the faction headed by finance minister Taro Aso, who backed Mr Suga this time around. “A lot will depend on how it goes over the next year.”

Ultimately, there is a difference between Mr Abe’s ascent in 2012 and Mr Suga today. Mr Abe’s agenda was something new. His policies were untested. He offered hope.

Mr Suga, by contrast, is following the established Abe manual. His offer to the Japanese public is clearer, but it provides far less room to renew any spirit of optimism. “Of course I’m nervous,” he said, as he took his seat in the LDP leader’s office for the first time on Monday. “I feel all the things I have to do.”

Via Financial Times