geopolitical risk ratings firm

Japan – Missed Opportunity?

Prime Minister Shinzo Abe opted for an early election in December 2014 with the stated aim of affirming his government’s popular mandate to proceed with an ambitious program of reforms—dubbed Abenomics—that are designed to lift the economy out of the low gear in which it has been stuck for more than two decades. However, there is a clear risk that the political capital he accrued as a result of the LDP’s convincing victory will be squandered on security measures designed to eliminate constraints on the Japanese military’s freedom to participate in non-defensive operations.
Abe argues that Japan must have greater flexibility in the use of its military in order to check China’s increasingly aggressive assertion of disputed territorial claims in the East China Sea and to participate as a full partner in a bilateral security arrangement with the US. However, his proposals are very controversial, and as they conflict with the Japan’s pacifist constitution, will very likely require approval in a national referendum, assuming they receive the required support of a two-thirds majority in both chambers of the Parliament. The chief danger is that convincing his party colleagues and the public at large to back the security measures will necessitate concessions that hamper the progress of the economic reform agenda.
The prime minister’s approval rating has sagged to just 42% according to one recent poll. Other factors contributing to the decline include the discontent over the inconsistent performance of the economy and misgivings over plans to bring nuclear power facilities back on line. Abe’s position is secure, but the prime minister’s loss of support figures to complicate the task of implementing the structural reforms that make up the so-called “third arrow” of the government’s economic program, which officials knew from the start would be a tough sell.
The economy registered a second consecutive quarter of positive growth in the first three months of 2015, but the momentum has not been sustained, with consumer spending continuing to lag, despite the postponement of a planned second hike in the consumption tax until 2017. Carry-over effects from fixed investment spending last year will also weaken the contribution from gross fixed capital formation, further undermining domestic demand. On balance, real GDP growth is forecast to come in below 1% in 2015, a performance that is unlikely to bolster Abe’s popular standing.


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