Author: Shiro Armstrong

Prime Minister Koizumi set up the Council for Economic and Fiscal Policy as a mechanism to strengthen structural reform in Japan. But the Council now appears ineffective under the weak leadership of Prime Minster Fukuda. Reforms have faltered.

In a speech to the annual NBER conference in Tokyo this week, Hiroko Ota , Japan’s Economic and Fiscal Policy Minister admitted that ‘Japan has so far failed to take advantage of globalisation’. Ota is a key force for reform in the Japanese government. In her candid assessment of progress and debate on economic reform, she highlighted many areas where Japan has fallen behind. The recent immigration debate, she said, is welcome but it is a debate that is 20 years overdue. Ota held the same post in the Abe Cabinet that she does in the current Japanese Cabinet.  She must be doing something right politically. But perhaps that’s just the problem. Under Fukuda, LDP factional political horse-trading has returned and Ota happens to belong to a faction needed to keep the LDP government together but with a policy message that she can’t sell against the mainstream. The Koizumi reforms are often blamed for widening the income gap in Japan and many of other problems that Japan faces today. The political mood has swung against the pro reformers. Koizumi’s strong lead on reform is a distant memory.

But is the current public mood a permanent barrier to reform in Japan? Margaret Thatcher carried out widespread reforms in the UK with an approval rate consistently below 50 percent. Reform can have its own momentum, can be institutionalised and de-politicised and can be taken up by reforming ‘champions’ – strong Ministers, business leaders, a influential public commentators. Strong leadership clearly helps but is neither necessary nor sufficient for carrying out economic reforms that, as Ota says, Japan still needs to capture the gains from globalisation. After the Fukuda Cabinet, which likely has a very short shelf life, who knows?