Abe's Power Play: For PM, Economic Results, Security Policy Take Priority

The Daily Yomiuri (Toyko, Japan), March 18, 2015 | Go to article overview

Abe's Power Play: For PM, Economic Results, Security Policy Take Priority


Koichi Hamada and Etsuro Honda, leading economists who are special advisers to the Cabinet, were summoned to the prime minister's official residence at noon on March 5 to spend about an hour analyzing the economy with Prime Minister Shinzo Abe.

Honda said that while cheaper petroleum had slowed the rise in consumer prices, the prime minister should not obsess over increasing prices, according to sources with knowledge of the meeting.

Abe replied: "If the cause [of prices not rising] is that monetary easing isn't helping, there's a problem. But that's not the case. Lower oil prices will benefit the gross domestic product deflator."

The GDP deflator describes overall price fluctuations, covering consumer spending, capital investment, imports and exports.

Abe's idea was that lower oil prices would benefit household budgets and business performance, which would eventually push prices higher overall. Honda agreed with Abe's hypothesis, the sources said.

During Abe's first stint as prime minister in 2006 and 2007, he was seen as having more interest in pushing conservative policies -- such as revising the Fundamental Law of Education -- than in economic matters.

"We reminded [Abe] numerous times about the difference between 'nominal' and 'real' in economic indexes, so he wouldn't make mistakes at press conferences or elsewhere," said House of Councillors member Yoshiyuki Inoue, who was parliamentary private secretary in the first Abe Cabinet.

Inoue added that from listening to Abe during deliberations in the Diet "he seems to have really studied up on fiscal policy and macroeconomics."

At a meeting of the House of Representatives Budget Committee on Friday, former Democratic Party of Japan President Seiji Maehara accused Abe of not knowing the difference between real and nominal wages.

Abe replied indignantly, "I give separate answers on real and nominal."

Abe's emergence as an authority on economic policy was greatly influenced by the economists and other figures with whom he surrounds himself.

Fujifilm Holdings Corp. Chairman Shigetaka Komori told Abe before the launch of his second Cabinet: "No one will oppose you if you push for economic growth. You'd better start with that."

While the DPJ-led coalition was in power, Abe actively sought out Hamada, a known proponent of monetary easing, and others. Under their tutelage he became a "reflationist," believing that monetary easing could produce economic growth.

Abenomics was born during this period.

The Nikkei stock average closed above 19,000 on Friday for the first time in 14 years and 11 months, a sign the domestic economy has again taken a turn toward recovery.

Yet concerns over Abenomics linger.

There are limits to how much can be achieved with monetary easing, and a collapse in government bonds due to higher interest rates or other factors is also a possibility. …

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