‘Japan is back,’ emboldened Abe declares at Davos forum

DAVOS, SWITZERLAND — The Globe and Mail

Japanese Prime Minister Shinzo Abe at the World Economic Forum in Davos, Switzerland, Wednesday, Jan. 22, 2014. Leaders gathered in the Swiss ski resort of Davos have made it a top priority to push to reshape the global economy and cut global warming by shifting to cleaner energy sources. (Michel Euler/AP)

With lean features, neatly clipped sentences and an unbending tone, Shinzo Abe projects himself well as the new hawk of Asia.

Since gaining power less than two years ago on a nationalist wave, the Japanese Prime Minister has wowed global investors and economists with a startlingly quick reversal of economic fortunes, leading the world for the first time in 20 years to talk of Japan as an engine of growth. The announcement of the 2020 Olympics for Tokyo has further bolstered his image as a man of action.

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“Japan is back,” Mr. Abe declared Wednesday at the World Economic Forum.

But it’s his belligerent tone toward China, and desire to increase Japan’s military strength, that has the world suddenly talking about war in Asia.

In an hour-long interview Wednesday with a small group of editors, including The Globe and Mail’s, Mr. Abe did little to dispel concern that he sees an Asian conflict as possible. Although he stresses he does not want that outcome, he twice compared the Sino-Japanese standoff to the mood in Europe before the start of the First World War, and expressed concern that a military conflict could start accidentally.

“We don’t have a clear, explicit road map with China,” he said, revealing there are no high-level channels between Tokyo and Beijing.

Mr. Abe also outlined his “three-arrow” policy to get his economy back on its feet, his cautious approach to Trans-Pacific trade talks and his bold plan to get more women into the male-dominated work force. Reformist at home and stern with powers abroad, he does not mind comparisons to the late Margaret Thatcher.

“There is no policy without risk,” he said of his inflationary economic policies, using a golf metaphor to denounce critics who say he is about to unleash a wave of inflation domestically. “We were in a bunker. For 15 years, we didn’t use a sand wedge for fear of hitting the ball too hard out of the bunker. I think a sand wedge is something we need to use.”

Mr. Abe’s aggressive tone is not a surprise to Japanese, as he campaigned on national pride in 2012 and has often compared his regional foreign policy to that of Mrs. Thatcher in the Falkland Islands. Both Japan and China lay claim to the Senkaku islets that sit to the north of Taiwan. China calls them the Diaoyutai Islands.

Mr. Abe says there is no doubt, under international law, about Japan’s sovereignty over the islands, and argues China is using them as a tool of expansionism, citing Beijing’s fast-growing military budget as further cause for alarm. “They are growing their defence budget by 10 per cent. Their defence budget is about double the size of Japan’s.”

He expressed concern that the United States, Japan’s military guarantor since the end of the Second World War, may not be as reliable an ally should conflict break out, given the fact that China is now the United States’ second-largest trade partner. “We need to have a stronger relationship,” he said of Washington.

After the interview, Mr. Abe told the Davos conference that world economic growth could be at risk if the growing Asian tensions are not addressed. “We must contain military expansion in Asia,” he told an audience of government, business and civil-society leaders.

He referred to China’s economic growth as perhaps the greatest deterrent to conflict; the tensions in recent months have been cited as reasons for a decline in investment in both countries. Bilateral trade has also been hampered.

However, he also referred to Europe in 1914, stressing that Germany and Britain at the time had strong and growing trade relations and still went to war. “I think we are in a similar situation. We don’t want an inadvertent conflict arising between these two countries.”

The sabre-rattling between Japan and China has played out in the form of duelling op-eds in a number of Western newspapers, including The Globe and Mail.

One irritant for China and Korea was Mr. Abe’s recent visit to the Yasukuni Shrine for Japan’s fallen soldiers. It honours, among two million dead, the Second World War commanders who were later declared war criminals.

He again defended his visit, saying it was the 65th by a Japanese prime minister, and refused to distance himself from the war criminals.

“These shrines are not a symbol of animosity or hatred or anything negative,” he said in the interview. “Those people who died during the war fighting for the nation need to be respected. All these souls of the departed are to be respected.”

The Japanese Prime Minister has been celebrated in business circles for his self-styled “Abenomics” model, which mixes fiscal stimulus, monetary stimulus and corporate reform and was credited with a sharp increase in growth last year.

“Japan is no longer a stagnant economy,” Mr Abe said, claiming credit for growth even though policies are still being introduced.

Although he intends to increase consumption taxes to help reduce his deficit, some economists fear he is heedless toward inflation and may allow wage demands to escalate. He has encouraged employers to increase wages across the board.

Given the rapid aging of Japan’s work force, the country’s economic ambitions will require a sharp increase in productivity, something not seen in a generation. He has promised corporate reform, and more competition, but entrenched interests in his ruling Liberal Democratic Party may slow him down.

Those same interests have also held back Japan’s ability to commit to a more open market under the Trans-Pacific trade talks with the U.S., Canada and others.

Domestically, he has turned to the idea of increased female work-force participation, and has set the 2020 Olympics as a goal for what he calls a “barrier-free society.”

The government has pledged a 30-per-cent quota for females in the civil service, and the creation of 200,000 daycare spots. “We need women to shine in the Japanese economy,” Mr. Abe said, adding that despite historic resistance to immigration, more foreign workers will also be needed, especially for health care and domestic work.

Mr. Abe has set out to break entrenched business interests, including those of politically important rice farmers and Japan’s powerful utilities. His government has begun to dismantle a 40-year-old policy of rice price regulation that subsidizes millions of producers, and is exploring ways to encourage farmers to consolidate land holdings in a nation built on small holdings. It is also committed to dismantling energy monopolies by 2020.

When asked if he would alter his policies should inflation or deficits get out of hand, he was matter-of-fact in saying there is no going back: “If the three arrows did not work, I don’t think Japan would recover for a long time. So I don’t have room to make a mistake.”

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