Farewell Abe, Hello Hydrogen
Japan's Next Leader Must Look to the Future
Japan’s Prime Minister Shinzo Abe has bowed out for medical reasons and will step aside when his party has chosen his successor. Given the economic backdrop to and context of his premiership, one has to conclude that he did pretty well to keep Japan’s economy growing at all. He ascended to the premiership after two decades of stagnation during which Japan somehow managed to maintain its status as the world’s second largest economy but also seemed to lose its vim. Perhaps this was due to Japan’s awful demographics – ageing populations spend less than younger ones and Japan has traditionally shunned migrant workers in favour of greater automation and technological innovations like robot hospitality staff.
Abe has managed the economy throughout the post-great depression austerity years, during the rise of China to superpower status, through the turbulence of Trump’s first term and in the midst of the Coronavirus pandemic. The cards have fallen unfavourably for him throughout his time in office.
Premier Abe tried to refloat Japan’s economy with Abenomics. This multifaceted economic policy featured: loose monetary policy (printing money and buying bonds to create inflation, encourage spending and discourage savings); a weak Yen (caused by low then negative interest rates and central bank currency trading) to encourage exports; loose fiscal policy (a Keynesian effort to prime the economic pump through infrastructure spending); and labour reform (to encourage women to work through equal pay schemes, and to encourage more entrepreneurism and employment through tax policy).
Abenomics had some early success. The stock market boomed. But rising corporate profits did not translate into higher incomes for Japanese salarymen (and women). Annual household income stood at JPY 5.21 Mn in 2010, bottomed out at 5.10 Mn in 2017 and recovered to 5.`7 Mn in 2019. Meanwhile, although female worker numbers reached a record 30.3 Mn by mid-2019, household labour participation rates barely moved as there were only 1.07 earners per household in 2019. In other words, more women were working but they were taking jobs from men.
Japanese exporters kept the economy afloat, in spite of occasional problems with China and America. The US and China remains Japan’s two largest export markets (basis 2019 data). But if USD 33.6 Bn of exports to Hong Kong is included, China is the number one destination in 2019 with USD 168 Bn of exports compared to USD 140 Bn to the US. Total exports in 2019 were worth USD 706 Bn, down 4.4% year on year but up 12.9% since 2015.
The advent of Coronavirus caused a 27.8% fall in Japan's GDP in Q2 this year as global consumers withdrew into their shells and an ill-timed increase in sales taxes depleted consumer disposable income. A rescue package worth 40% of GDP has yet to bear fruit as Japan’s bureaucracy creaks under the strain of doling out instead of taking in money from consumers.
The next prime minster will have to work hard to keep Japan afloat. None of the challenges Abe faced have gone away. None of his prescriptions has entirely worked. And there can be no lasting economic recovery until the Coronavirus pandemic is brought under control or burns itself out. Fiscal and monetary policy are likely to stay much the same until either eventuality occurs.
Throughout the Abenomics era, Japan’s shipping industry has benefited from a weak yen, lowering domestic wage costs compared to dollar incomes. It has also benefited from low interest rates, supporting capital raising either from banks or equity markets. Regulatory reform has helped somewhat with issues like the three-way merger of Japan’s liner companies into Ocean Network Express. Japan’s shipyards have benefited from the weak yen, making their products competitive with Korea and China when priced in USD. The Japanese shipbuilding industry has in fact gone through something of a revival compared to expectations a decade ago when it was considered to be a sunset industry.
Japan’s technological leadership may be where it contributes most to shipping in the coming decades. A national energy policy aimed at decarbonisation and the promotion of hydrogen and fuel cells for transport may lead the world. For the government, “a hydrogen-based society is a means to an end” – that end being an end to reliance on (nearly 100% imported) hydrocarbons. Furthermore, “Japan will expand its hydrogen technologies overseas to lead global carbon reduction….Japan should lead the world in realizing a hydrogen-based society”.
With 2020 turning out to be the year that most of us would prefer to forget, it’s perhaps some consolation that the land of the rising sun is so focused on the element of which the sun is mostly comprised. The next Prime Minster will do well to deepen and strengthen Japan’s commitment to weaning itself off costly imported hydrocarbons. Who know what that will mean for ships transporting oil, gas and coal, but the climate science now seems to be unchallengeable. Much like Abe’s economic policy.