As most of you will have already picked up, Japan today is having upper house elections. Japan’s current leader Shinzo Abe is widely thought to be in for a drubbing. Normally elections to the Japanese upper house would not be considered to be particularly important, but this time there are reasons to believe that things may be different. So I am taking the unusual step of live blogging todays elections on the Japan Economy Watch blog. Maybe most European readers assume that what is happening today in Japan is of little concern to them. Such a view is understandable, but in an increasingly globalised world it may be too provincial, especially in the light of Japan’s increasing importance in the global liquidity phenomenon. I can think of three major reasons for keeping a weather eye on Japan over the next couple of days.
The first of these, as the Economist indicates here, is that an elderly Japan may now be suffering from reform fatigue. The recent muddle over 50 million pension records which cannot be attributed to their contributors means that the Japanese electorate are now in no mood at all to be presented with yet another pension reform whose objective would be to downgrade the payout which they can expect to receive after all those years of contributions. This, however, is all that, even under the best case scenario, can be reasonably expected. As the Economist notes, the young are now voting with their feet:
“Can a working population support such a number of future retirees? Today’s younger workers appear not to think so. Two-fifths of them are not paying contributions towards the fixed portion of their state pension scheme (current contributions fund present, not future retirees), suggesting they don’t believe that the scheme will be viable when they retire. And they may be right.”
This is a very clear example of a “self-fulfilling expectations” process, if you don’t think something can work you pull out, and as a result the thing certainly can’t work. And all those countries which have an outstanding problem with their pension and health systems (hint, hint, Germany and Italy) may well look to Japan and be warned.
A second issue which is looming on the horizon in tandem with these elections is the forthcoming August decision from the Bank of Japan on whether or not to raise interest rates another quarter percentage point. Personally I had been growing rather skeptical about whether the BoJ would be able to live up to market expectations here (Ken Worsley on the excellent Japan Economy News blog has also been worrying about all of this), but if this election turns into the rout for Abe that many people are expecting it is hard to see the poor old BoJ soldiering on regardless, and keeping a clear head whilst all those around it are busy losing theirs.
But losing your head (metaphorically speaking) is one thing, and losing your shirt is quite another. Which brings me to my third point. As the British historian AJP Taylor liked to stress, history is often nothing more than the sum-total product of a sequence of minor accidents, and on this occasion the governing structure may not be railway timetables but rather stock market opening hours. Tokyo, as luck would have it, needs to lead off tomorrow’s global response to last Friday’s drubbing on Wall Street. Right lads, best foot forward now……
Postcript: Manuel Alvarez of Election Resources on the Internet is maintaining a page on the elections which will be updated as the results come in, and is also posting commentary at Global Economy Matters.