Kishida should learn from Xi that security is not just about arms
Japan cannot vie for leadership in Asia without substantive economic reform
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."
Japanese Prime Minister Fumio Kishida is making global headlines as he bulks up Tokyo's military capabilities, including putting in an order for a sizable number of Tomahawk cruise missiles from the U.S. ahead of his government's announcement of a new national security strategy that will focus on China.
In month 14 of a floundering premiership, Kishida also opted for weaponry of another kind this week, reportedly agreeing in principle to join U.S. efforts to stymie China's development of high-end semiconductors.
Watching these maneuvers, it is hard not to worry that Kishida is ignoring a greater danger at home: economic complacency that is weakening Japan's long-term trajectory and global standing.
In less than two weeks, Tokyo will mark the 10th anniversary of the return to power the Liberal Democracy Party and of Kishida's mentor, Shinzo Abe. Their comeback was made possible in part by China surpassing Japan in gross domestic product terms in 2011, enabling Abe to recast his party as an engine for structural reform that could help Tokyo reclaim innovative and geopolitical momentum in Asia.
A decade on, the LDP's report card is a poor one. Shirking the hard work needed to attack bureaucracy, boost productivity, engineer a startup boom and empower women, Abe outsourced economic revival to the Bank of Japan.
The field general to whom Abe entrusted the job, Haruhiko Kuroda, is about to have his own brush with history. In March, Gov. Kuroda will end a 10-year stint that is rapidly heading south.
Not only could Japan be in recession when Kuroda exits, it could be confronting something BOJ watchers probably never even contemplated: outright stagflation.
To be fair, neither the late Abe nor Kuroda could have foreseen the COVID-19 pandemic, the supply-chain chaos of recent years or Vladimir Putin's inflation-generating Ukraine invasion. But the dearth of reformist momentum and the weak-yen campaign of the previous eight years have left Japan with severe preexisting conditions as 2023 approaches.
One is a yen down 20% this year which has Japan importing the bad kind of inflation: cost pressure driven by elevated commodity prices and undervalued exchange rates.
It is quite the irony. Kuroda essentially morphed the BOJ into a giant hedge fund, cornering markets for bonds and stocks. Yet it was Moscow's disastrous war that ended Japan's deflation.
The worst inflation in 40 years could get a further assist from Chinese President Xi Jinping's gambit to suddenly reopen his nation's economy. China's biggest protests since the late 1980s have Beijing dismantling COVID curbs with dizzying speed.
Resurgent Chinese economic growth in turn is likely to result in increased demand for Japanese goods, further fanning inflationary forces and potentially marring Kuroda's last months at the BOJ. Should Chinese tourists return to Japan in force, this would add to the pressure on domestic prices.
If Kishida has a solution, the prime minister is not saying. Earlier this month, his government enacted a 28.92 trillion yen ($210.84 billion) extra budget that was straight out of the LDP's decades-old playbook. This kind of move to support an economy facing downward pressure treats the symptoms of why Japan is recession bound, not the underlying drivers of the problem.
When he took the reins in October 2021, Kishida captivated global investors with talk of a "new capitalism." The plan to hasten GDP growth and rekindle innovation alongside achieving a more equal distribution of wealth sounded grand and seemed to represent a timely strategy to reboot efforts to get back on the economic battlefield that China has been dominating more and more.
After all, the real race for leadership in Asia is less about missiles, aircraft carriers and fighter jets than winning the war for dominance among technology platforms. The real power Tokyo can and should wield is reminding the globe how Japan Inc. once set the stage for the spotlight that now falls on Apple, ByteDance, Samsung Electronics, Tesla and Xiaomi.
Yes, Japan wants to keep pace with China's military buildup to some extent. Case in point: Kishida plans to boost Tokyo's five-year defense spending by 56.4% to 43 trillion yen for the cycle ending March 2029. And North Korean leader Kim Jong Un is always there on the periphery, stirring up trouble.
But Kishida's economic reform program, like Abenomics before it, lacks firepower. There is a paucity of detail, focus and, given Kishida's dwindling political capital, a real chance that it can survive.
This in turn plays into Xi's grand design to dominate the future of semiconductors, biotechnology, renewable energy, electric vehicles, artificial intelligence, robotics and aerospace.
In the interim, the BOJ is again in the limelight as investors wonder what is next. The central bank is essentially trapped.
Adding more liquidity would fan inflation expectations but draining it might panic the bond and stock markets and in turn, shatter business confidence. The BOJ would be wise to leave things on autopilot and nudge Kishida's team to give supply-side upgrades a try.
As Kuroda prepares to step down, all eyes are on who the prime minister will choose to replace him. Much of the chatter centers on Masayoshi Amamiya and Hiroshi Nakaso, current and former deputy governors of the central bank, respectively.
But does it really matter if lawmakers refuse to do their jobs to increase economic readiness along with Tokyo's military posture? The window for Kishida to be remembered for resurrecting Japan's animal spirits is closing fast.