Japanese Prime Minister Shinzo Abe’s imminent resignation will exacerbate a period of deep uncertainty for the world’s third-largest economy, including on such issues as the fate of “Abenomics” and his long-sought constitutional reform, as well as a possible fierce battle to become his successor, observers said.
Abe, the longest-serving prime minister in Japan’s history, announced on Friday that he intended to step down after eight years in office, citing health reasons, as the country struggles to deal with the COVID-19 pandemic, a severe economic downturn and geopolitical disputes with such neighbors as China, Russia and South Korea.
Local markets already showed worrisome signs, as Tokyo’s Topix index on Friday reversed gains of more than one percent to be down as much as 1.5 percent in afternoon trading. Meanwhile, Japan’s yen, often a safe-haven currency to buy in times of uncertainty, strengthened 0.3 percent to 106.26 yen per dollar.
“Abe’s abrupt resignation has left many uncertainties for Japan,” said Yu Qiang, a researcher of Japanese studies at the University of International Relations in Beijing.
Yu added that over the years, Abe had brought stability to Japanese politics and increased Japan’s international presence, but failed to achieve goals he had once promised, such as to revise the Pacifist Constitution, solve territorial disputes with Russia, and revive the economy to hit a target of 2 percent annual inflation.
“The most important thing in politics is results,” Abe said at a news conference in Tokyo on Friday. “It is gut-wrenching to have to leave my job before accomplishing my goals.”
The prospects of Abe’s departure had prompted broad concerns over his signature Abenomics, which includes monetary easing from the Bank of Japan, fiscal stimulus through government spending, and structural reforms to jolt the economy out of the stagnation that has gripped Japan for more than two decades.
“The market would probably lose confidence to any return to revolving-door politics,” said Yu, using a term that describes how Japan had gone through six prime ministers in six years before Abe took office in 2012. Abe himself was one of those, having served his first stint as prime minister from 2006 to 2007.
Erbiao Dai, vice-president of the Asian Growth Research Institute in Fukuoka, Japan, said Abenomics had delivered some results under the Abe administration. Dai cited the good performance of inbound tourism and the lifting of the economy out of an unrelenting malaise, but said efforts on “counterbalancing a declining and aging population” and “corporate deregulation in structural reform” remained to be seen.
“Japan is still not a favorable place for foreign investment, due to many restrictions, and still lacks the courage to introduce landscape-changing immigration policies,” Dai added.
“The fate of Abenomics would focus on the change of leadership in Japan’s governing Liberal Democratic Party and the leadership of Japan’s central bank,” Dai added.
Abe’s resignation opened the field for what may be a fierce battle among LDP executives to become his successor.
“We are finalizing plans for selecting a new leader and I hope that decision can be made as soon as possible,” Abe said on Friday, declining to name a favorite candidate but saying the leading ones were all “promising”
Front-runners in the race include LDP policy chief Fumio Kishida and former defense minister Shigeru Ishiba, both of whom indicated their desire to run shortly after Abe announced his intent to step down.
On Sunday, Chief Cabinet Secretary Yoshihide Suga, a close aide to Abe, also joined the race.
Local media reported that the LDP will hold the election around Sept 15.
Masanari Koike, a former member of Japan’s House of Representatives, said that how the LDP conducts the leadership election will weigh heavily on the process.
“In a full election, in which regional party officials are able to vote, Shigeru Ishiba, Japan’s former defense minister and a long-standing rival of Abe, has support from the grassroots but little backing from parliamentary members,” Koike said, adding that the election could also be limited to parliamentarians due to the coronavirus pandemic.
“In that case, Fumio Kishida, the LDP’s policy chief and Chief Cabinet Secretary Yoshihide Suga are regarded as formidable candidates,” Koike said.