Global Economics

Japan: Abe Premiership Panned by Voters

The ruling Liberal Democratic Party receives a thrashing over scandals and missteps by Prime Minister Abe, but the economy continues to cruise along

Less than a year into his tenure, Japanese Prime Minister Shinzo Abe's government is shaky. On July 29, voters dealt Abe's governing party an embarrassing defeat in a national election that many observers had billed as a referendum on the premier's leadership. With the opposition Democratic Party of Japan now poised to take control of the Upper House of the Japanese Diet, it raises questions about whether Abe still has the political chops to deliver on reforms he's promised.

It also forces Abe to seek out the opposition's backing on key issues, such as hiking taxes, extending rearguard military support for U.S. forces in the Indian Ocean, and amending constitutional restrictions on overseas military missions, which he sees as vital to Japan's hopes of asserting itself on the world stage.

What the election is unlikely to derail is the economy's five-year growth streak and the stock market's recent upswing. Nor is it expected to lead to a reversal in mergers-and-acquisitions reforms that have lowered the bar for overseas funds and companies angling for a piece of the action in Japan.

Premier's Ouster Not Imminent

Abe acknowledged that his ruling Liberal Democratic Party had suffered a "humiliating defeat" in the Upper House and that voters had issued a "harsh" verdict on his first 10 months in office. But the 52-year-old leader brushed aside talk that he might resign due to the poor showing. "I don't think our policies have been wrong," a solemn Abe said during a post-election interview with public broadcaster NHK. "It is my mission to make sure we deliver on the policy promises we have made voters."

Analysts said the LDP's credibility has taken a pounding. They blamed public disenchantment with Abe's policy agenda and inept leadership, and said his decision to stay on could only add to the party's woes. "This was probably the worst defeat that the LDP has suffered since the party was formed in 1955," says Columbia University professor Gerald Curtis, an expert on Japanese politics. "One LDP official I spoke with put it this way: 'The LDP is like the Titanic, except the difference is that people on the Titanic didn't know it was going to sink. [The LDP] is going to sink, but we can't get off.'"

So far, Abe appears to have support from LDP heavyweights—if only because there are no strong candidates to fill his shoes. Another reason Abe doesn't seem to be in immediate danger of being ousted: The LDP still dominates the more influential Lower House. That chamber isn't expected to face elections until 2009, which gives Abe's party a firm lock on power for now. Whichever party controls the Lower House gets to appoint the prime minister, is far more involved in coming up with the annual budget, and can muster a veto against Upper House decisions.

Many experts had expected voters to respond angrily to the government's recent blunders. Abe's support ratings have dived from 70% at the start of his term to below 30% in the past few months after the opposition blamed his government for misplacing millions of pension records. Scandals over the misuse of political funds, gaffes by key Cabinet members, and a quake-triggered nuclear plant leak further fed public disenchantment.

Vulnerable After Rout

Despite that, the extent of the drubbing suffered by the LDP was a surprise. With half of the Upper House's 242 seats up for grabs, the LDP and an allied party had needed to win at least 64 seats to retain a majority. But exit polls early on July 30 (unofficial results were in for all but one seat) indicated that the LDP had won just 36 seats and its coalition partner, the New Komei Party, had won eight—leaving them with a combined 102, including uncontested seats. It was the worst showing for the LDP since 1989.

Meanwhile, the Democrats nearly doubled their presence, scoring 60 seats and lifting their tally to 109. While they still lack an outright majority, the Democrats have support from a few of the four smaller opposition parties and independents who make up the remaining seats in the chamber. "The people have spoken," the Democratic Party's acting head, Naoto Kan, told NHK TV. "The question is whether [Abe] will listen."

Indeed, history shows that Abe remains vulnerable. In 1998, then-Prime Minister Ryutaro Hashimoto resigned after the LDP won just 44 of the contested 121 seats in the Upper House. Back then, he faced a sputtering economy, troubled banks, and a public that was disgruntled by his inability to fix the country's problems and his decision to jack up the consumption tax. Another premier, Sousuke Uno, stepped down in 1989 after a rout similar to Hashimoto's.

It's already clear that Abe has none of the glamour or the political flair of his charismatic predecessor, Junichiro Koizumi. Koizumi, who was Prime Minister for 5 years—the longest-serving Japanese leader in two decades—used those natural gifts to rally public opinion and force conservatives in his own party to back his policy agenda. Abe, who was chosen to lead the LDP in September, can't compete. He will likely reshuffle his Cabinet soon, but it won't likely help him salvage the mandate he once enjoyed. In fact, until Abe is gone—and nobody but the Prime Minister can predict that—Japan's government could get bogged down as policymaking takes a backseat to political theater, and all the shifting alliances and backroom deals that brings with it.

Hall is BusinessWeek's technology correspondent in Tokyo

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