Personal Wealth Management / Politics

Abe’s Constitutional Gambit

It seems Japanese economic reform may be on ice for now as Abe takes aim at the constitution.

Shinzo Abe’s nationalist aims may once again block economic reform. Photo by Brendan Hoffman/Getty Images.

After quickly firing off the first two arrows of Abenomics, Prime Minister Abe may be leaving the third (and arguably, most important) arrow in the quiver for a while. Instead, he may be taking aim at Japan’s constitution.

To recap briefly, Abe sailed to a second term as prime minister (his first, starting in 2006, lasted a year) with promises to revive Japan’s long stagnating economy via monetary stimulus, fiscal stimulus and (much-needed) structural economic reforms (the three arrows of “Abenomics”). The lack of progress on said structural reform in recent years—including the inability to win much popular support for it—has led to Japan’s fast rotating cast of prime ministers, with Abe back as the eighth PM in as many years.

Yet, Abe now has what many of his recent predecessors did not—tremendous popular support that only increased since taking office (unheard of in recent Japanese politics). But he may not be willing to sacrifice that popularity yet and risk another fast exit on the perceived albatross that is economic reform. He’s delegated policy specifics to a series of working groups. Plans were due in June, but that looks like it may be pushed back.

Instead, it appears Abe is shifting to a life-long goal—revising Japan’s pacifist constitution, specifically article 9. Article 9 severely limits the size and activities of Japan’s military to defense only—and Abe would prefer a more martial Japan. But instead of a direct hit on article 9, Abe is trying a bit of an end-run on article 96, changing the threshold for constitutional changes from two-thirds majorities to simple majorities in both houses.

We rather doubt article 96 would be reinstated once (if) article 9 is overridden, which would make the Japanese constitution a very changeable thing indeed. Like or loathe the Japanese constitution in its current form, the plodding nature of major structural government changes is actually on balance a marvelous thing for developed economies. Sure! Much needed economic reform might be easier to ram through if Japan’s constitution were more malleable. But for every “good” reform that can get rammed through, an equal (or, probably, greater) number of poorly thought out changes get that much easier to effect. Further, a constitution that’s easily changed means one political party with majorities in both houses could change the constitution to cement their grip on power long-term. Bearish.

Changing article 96 is hardly a given. Abe’s party (the Liberal Democratic Party of Japan—LDP) has the lower house, but the upper house is held by the Democratic Party of Japan (DPJ). However, elections are in July, and Abe remains very popular.

Still, this is all rather reminiscent of his last term. His first-term predecessor, the popular Junichiro Koizumi, won parliamentary support for reforming the Japan Post (Japan’s antiquated national bank-slash-pension fund) along with other key reforms. However, the terming-out Koizumi handpicked Abe to carry the torch. Once in office, Abe may have discovered reform of that sort takes major political capital—capital he didn’t have. Or, he may have let his true colors fly (or some combination). He instead pushed for changes to school curriculum to make it more patriotic. Oh, and he called for changes to the pacifist constitution. His popularity plummeted, and he resigned on his first anniversary as PM.

Now, Abe is a politician, first and foremost. Perhaps he believes rattling some sabers now, just when tensions are increasing over the disputed Senkaku islands (or Diaoyu or Tiaoyutai islands—depending on who’s side you take) in the China Sea and Kim Jong Un is, well, being, Kim Jong Un, may win him additional support. And perhaps he views that additional support as necessary to push through this third arrow—economic reforms. Or, he may be engaged in a legitimate push for a radical overhaul of Japan’s constitution—which currently isn’t polling very well. If that’s the case, Abe may find himself spun through Japan’s PM revolving door once more—and true economic reform may yet be a way out.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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