Noda Should Keep His Eye on the Prize

By Matt Goodman

Prime Minister Noda of Japan faces a series of economic challenges. Source: World Travel & Tourism Council’s flickr photostream, used under a creative commons license.

The Japanese have a word, ganbaru, that loosely translates as “show resolve.” It is the quintessentially Japanese quality that the world has seen so movingly on display since the triple disasters of March 11, 2011. As measured by the policy boldness he has displayed over the past month, Prime Minister Yoshihiko Noda clearly has it in spades. Noda will need all of his resolve to make one last push over the next few months to secure Japan’s economic future—and his own legacy as one of the most effective Japanese leaders of the postwar era.

On taking office last September, Noda inherited a trifecta of economic challenges that would have tested the resolve of a political leader anywhere: a battered economy struggling to emerge from nearly two decades of deflation and find new sources of long-term growth; a debt burden that by some measures is the highest in the advanced world; and the sudden and near-total loss of 30 percent of Japan’s electricity supply following the Fukushima disaster and the decision to shutter all of the nation’s nuclear reactors.

Noda quickly revealed his determination to take on all three of these challenges, despite formidable political obstacles. In the face of deep misgivings nationally and within his own party, he made the case for preserving some nuclear energy capacity. He declared his intention to push through legislation to double the reviled consumption tax to put government finances on a sounder footing. And at last November’s APEC Summit in Honolulu, he signaled his desire to bring Japan into the Trans-Pacific Partnership (TPP) trade negotiations to help spark long-term Japanese economic growth.

Noda has now taken steps to address two of these challenges. On June 16, he ordered the reopening of a pair of nuclear reactors in western Japan after arm-twisting the relevant local authorities. And 10 days later, he won passage through the Diet’s Lower House of legislation to raise the consumption tax. This summer will still be an uncomfortable one in Japan, as air conditioning in homes and offices is turned down to ensure adequate energy supplies; meanwhile, the tax vote prompted a large-scale defection of Diet members from Noda’s ruling Democratic Party of Japan (DPJ) that could put all of his reforms in jeopardy. But the recent actions were important and bold first steps.

Now comes the hard part. Japanese entry into TPP holds the promise of forcing the structural reforms that are so needed to raise the productivity and growth of the Japanese economy. Key reforms include making labor markets more flexible and increasing the productive participation of women in the workforce; liberalizing Japan’s inefficient service sectors; and rationalizing and opening the protected agriculture sector.

These changes promise a brighter economic future for Japan. But they will be painful to implement, imposing not just economic but social costs. For this reason, TPP entry is being resisted by many in the DPJ and by vested interests, particularly the agricultural lobby. But none of these opponents has laid out an alternative plan for securing Japan’s hard-won economic prosperity in the face of an aging and declining population and intense global competition—competition that has only become stronger since Mexico and Canada were recently approved for TPP membership.

Noda has a narrow window over the next few months to earn a better place in history than most of his feckless predecessors by persuading his countrymen that TPP is the only realistic plan to force Japan’s needed structural change. Assuming he survives the mutiny in his party and is able to push the consumption tax legislation through the Upper House by the end of the summer, Noda should turn back to the task of developing a plan for comprehensive agriculture reform, a de facto precondition for Japan’s TPP entry. He should then tell the world—ideally by the time of the UN General Assembly meetings in late September—that he has made a clear decision to join TPP.

To persuade the existing TPP members—notably the United States—that Japan is ready, Noda will need to put a few confidence-building measures on the table. In addition to a credible agriculture plan, Washington wants to see a standstill on recent postal “reforms” that threaten to upset the competitive playing field for U.S. insurance companies; and some token concessions on further opening Japan’s automobile market to counter the fierce opposition to Japan’s entry from the U.S. auto industry.

Assuming Noda comes through and provides the necessary ammunition, the White House should seize the opportunity to make the case to Congress for Japanese TPP entry. To be sure, there are political risks in an election year to advocating more trade with Japan, and it may not be realistic to start the clock on the required 90-day congressional notification until immediately after the presidential election. But win or lose in November, President Obama has a chance to secure his legacy as the United States’ first Asia-Pacific president by bringing the world’s third-largest economy into TPP. Japanese entry will be a game-changer in both economic and strategic terms, by substantially increasing the economic heft of the group; by putting another champion of high-standard trade and investment rules on Washington’s side of the negotiating table; and by making it more difficult for other Asian countries—ultimately including China—to resist joining TPP.

President Obama could be forgiven for struggling to remember the names of all four Japanese prime ministers who have served during his administration. Noda has a chance to be the first memorable one, if he continues to show the kind of resolve he has demonstrated over the past month on other key policy challenges. Noda-san, ganbare!

Matthew P. Goodman holds the William E. Simon Chair in Political Economy at CSIS.

Matthew P. Goodman

Matthew P. Goodman

Matthew P. Goodman is senior vice president and William E. Simon Chair in Political Economy at CSIS, with particular emphasis on Northeast Asia.


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