Japan Between Political Crisis and Economic Decline

The process of the capitalist mode of production’s general crisis has several facets: economic, social, military, and political. Each of these facets consists of many layers of complexity which, in turn, are influenced by other developments. Crises are often portrayed by the bourgeois narrative as “exceptions” over the linear course of history, perturbing the “unchanging and eternal” categories of democracy and market economy. In truth, history doesn’t unfold in a linear manner. 

Some evidence suggests an acceleration of events in the Asian, or, better, in the “Indo-Pacific” quadrant. We must look at Japan under this very lens. Japan is bearing the brunt of the deconstruction of the infamous US-led system of alliances, which started with the Obama administration. The “pivot to Asia” strategy brought strategic, diplomatic, and economic focus on the entire region. Years later, it is now coming to an end. The priorities of US intervention are undergoing a reset, as envisioned by the budding Trump administration. In this respect, Japan is no longer seen as a bulwark of the so-called free world against traditional enemies such as China, Russia, or North Korea, but rather as just another US competitor.

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The Kishida government invested huge sums into the defense sector, consequently depriving the national healthcare and welfare system of resources. Regardless, it was the cabinet’s task to face the difficulties related to the inflationary pressures, the consumption stagnation, the abysmal demographics, and the unsustainability of the current policies in regards to immigration and housing. 

The stage for Kishida’s demise was set by his involvement in a “scandal”—one set into motion, at the precisely right time, by the bourgeois press. The coverage of the scandal snowballed: the story portrayed by the news consisted of a textbook case of corruption, enacted by three factions of the conservative wing of the Liberal-Democratic Party. These factions had allocated campaign money into a set of slush (“dirty”) funds, for a gross total of $4,000,000 (¥600,000,000). 

The role of corruption, in every bourgeois government, is to facilitate the succession of the heads at the top of institutions and enterprises, as happened after Kishida’s resignation. First, Kishida sponsored his former Chief of Cabinet Hayashi Yoshimasa as a suitable leader. He then switched endorsements to Ishiba Shigeru, who ultimately prevailed over Takaichi Sanae to become the next chairman of the bourgeois government of Japan. Although it may have hid its image of a failed government—in office from October, 4 2021 to August, 14 2024—Kishida’s cabinet fell short to put in place an efficient recovery policy from the economical and financial damage caused by the Biden’s administration so-called “friendshoring” (the strategy aimed at investing in allied countries, enabling them to invest in their own territory while maintaining privileged business relations with them). The last act of the strategy was the  US President’s veto against the acquisition of US Steel by Nippon Steel. Ishiba tried to reopen negotiations and is currently seeking to close the deal before the Trump administration enters office. 

The Committee on Foreign Investments in the US, however, has yet to green-light the deal. Nevertheless, the latter is seen as profitable by US Steel, which was one of the highest-level worldwide players in the steel industry. The potential trade-off between profits and security was the reason why the US Steel leadership had opted to close the deal with Nippon. However, the Biden administration saw the deal as disadvantageous for the integrity and freedom of American capitalism, effectively disavowing its “friendshoring” demagogy and its promises. For a country fully involved in a multi-level confrontation with China, the government’s red line was its inability to close the acquisition of a company from a supposedly “friendly” country.

On the other hand, Japan didn’t officially confirm any involvement in the anti-Houthi’s campaign. Japan tried to preserve its role by not further enforcing sanctions against Russia, preserving its chances to continue receiving Russian-generated LNG (liquefied natural gas) from the Sakhalin-2 pipeline. Furthermore, it has tried to crawl out of the Middle East mayhem. Japan effectively maintains its relationship with the Israeli economy. However, it is also opening itself to the financial and military opportunities offered by Saudi Arabia, which will potentially enable it to make deals with BRICS countries and companies.

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The Japanese economy is unlikely to see any further improvement in the regulation of interest rates and inflation. The latter has fallen below 2%. The Bank of Japan (BoJ) has been proven wrong in its hypotheses that higher wages would have pushed consumption rates forward, which would in turn pave the way for the public acceptance of a more aggressive policy of interest rate hikes.

The price formation in Japan is computed with  two different indexes. The first is the Tokyo consumer price index (CPI), while the second is the so-called “core-core” index. The latter does not include the updated prices of fuel and fresh foods, and is the index BoJ looks for to define the outcomes and scope of its policy. The amount of public spending was a result of subsidies, reintroduced by the government to help pay utility bills. These price forecasts benefit from a wide-range review process that Japanese firms put into effect once in two years. Service inflation is highly regarded as an indicator in particular. The slowdown from the +1.2% increase in September to the +1.1% in October suggests consumption is not as high as needed for businesses to compensate for the rising labor costs, thus hampering BoJ’s ambitions of preserving businesses profits while still continuing to raise rates.

The data from October reveals a continued inflationary pressure on prices, signaling a contraction that was particularly pronounced between September and October.

The breadth and depth of this measurement has made the relationship between manufacturing and services decline pretty evident, with the latter following the former.

Forecasts that use another index—such as PMI New Orders Index which focuses on the forecasts on future orders to businesses—indicated a sharp decline in June, which in turn was the highest from February 2022. According to this, the growth expectancy for the subsequent 12 months saw the largest drop in October, after a three-months shrink, the lowest since August 2020.

Pressures from large private capital, which define the State’s economic and financial policy,  combined into a strong push on the BoJ to force it to delay its next moves at least to the second quarter of 2025.

Wage hikes in October, as well as pension spending, followed the trend, which was already developing under the Kishida cabinet. After endless negotiations, small sums were “delivered” to workers or retirees.

Additional measures to sustain Japan’s crippled demographics were also set up, with a raise in child allowance to ¥30,000, with payments starting in December.

Retirement coverage for part-time workers (kosei nenkin) has been extended from firms with 101 employees to those from 51 up, signaling a significant shift of the labor force to more “insecure” forms and conditions of work.

These gloomy “improvements”—which have already lost momentum since the very moment they took place—are deemed unlikely to effectively increase the buying power of the workers and the retired, further hampering consumption, fiscal revenues, and supply chain economy. 

In order to properly understand Ishiba’s hopes for forming a new cabinet under these difficult conditions, it is useful to look at the process that took place for the 50th House of Representatives election. 

Kishida’s resignation cannot be reduced to just a reputational issue, of course. The bourgeoisie’s approval of the cabinet plunged to its lowest just as the tension with North Korea and China soared up, as Japan became the target for business restrictions—posed by a leaving Biden administration—on the subject of expansion in the US steel industry. 

Above all, it is of utmost importance the current difficulty the country faces in sustaining its huge military expenditures—for naval buildup—without them weighing on other sectors. A consequence of this has been the bolstered demand for new industrial subsidies by the industry, which had built a relative advantage in terms of production for export over the years.

The Kishida cabinet was still too embroiled in a losing strategy on prices and monetary policy it shared with the BoJ to decisively intervene on inflation. This made the already implied fact that the Japanese economy was experiencing the same downsides of Bidenomics in the US. Ishiba’s appointment was fraught even more apparent.  It came in the context of increased rivalry between factions of the Liberal Democratic Party (LDP), ultimately leading to a reconstruction of the same balking coalition that brought Kishida into power in the 2021’s general elections (a set composed by the LDP and the Buddhist-inspired Komeito party). The election was preceded by the nomination of representatives, serving both as an intermediate step and a testing ground for discussing policies among the various factions of the bourgeoisie, before agreeing on a common blueprint.

The so-called “lawmakers faction” was tasked to put the “challengers” to the test. In the first turn, conservative Takaichi had fostered a further increase of military pressure against the neighboring countries. Ishiba was defeated, scoring only 46 lawmakers and 108 party members votes, for a 154 total. The outcome was however reversed in the second turn, when Ishiba won the nomination with 215 votes against the 194 votes of his opponent. 

Analysts argued that Takaichi’s loss was due to fears about the international consequences that would have followed her appointment. These analyses, however, do not take the economy into proper account. They are therefore biased by the bourgeois line of thinking portraying politics as a free sphere, independent from the bare necessities of class power preservation. 

On October 1st, Ishiba’s nomination was formalized. However, the political climate was far from consolidated. The short-lived nomination was put to a halt on October 9th when Ishiba made the government resign, so as to pave the way for the dissolution of the Diet and the proclamation of new “snap” elections. In the eyes of some Western sources, these elections were done solely to give Ishiba’s mandate some form of public legitimacy. 

At least on paper, the LDP initially had the upper hand over the other participants in the electoral farce, such as the Constitutional Democratic Party with its new elected leader, Noda Yoshihiko, and the Communist Party. However, the LDP did not end up achieving its goal of gaining significant ground for stabilization into power. In this sense, it experienced a catastrophic loss of majority against the Constitutional Democratic Party of Japan (CDP), falling from 288 representatives to 215, well below the 233 threshold required for the majority to be officially recognized. The CDP gained 148 seats, 50 more than in the 2021 general elections. Already weakened by internal rivalry, the LDP and its Komeito allies (whose number of seats went from 32 to 24) had to consider the possibility of a minority government, scaling back their goal of being the cornerstone of bourgeois politics in Japan—a role they have enjoyed over the past decades. 

The country’s standing and its ambitious military expansion program are now hang in the balance, leaving Ishiba with no option other than replicating the 2009 situation when the LDP lost the majority.

The strategy now implies scrapping the constitutional revision (for the absence of a clear majority) and creating on-the-fly alliances with opposition forces, in order for specific bills to be approved. Among these opposition forces are  the CDP and the JIP (Japan Innovation Party). The latter is a political formation run by the lobbyists of edge technology and energy businesses, an expression of the influential “stakeholders” movement. In this context, with demands from both the US and China unlikely to ease, and the prospect of military confrontation looming ever closer, the stage has been set for further instability.