as Japan’s Abe stays on

There’s no better way to judge a man, the old saying goes, than by the caliber of his critics.

Just ask Japan’s Prime Minister Shinzo Abe, who’s getting grief even from the man who arguably paved his route to the premiership.

The drubbing Abe took recently from the Japanese electorate is getting most of the headlines, of course. His Liberal Democratic Party (LDP) and its coalition partner had won 46 seats, well short of the 64 needed to keep their majority, public broadcaster NHK reported.

The thrashing was no surprise. What was unexpected was hearing Abe’s political benefactor, Yoshiro Mori, appear to give up on him. In a speech over the weekend, Mori, 70, suggested that Abe lacks experience and said future LDP leaders will need to have proven themselves in longer careers.

The comments raised eyebrows around Nagatacho, Japan’s equivalent of Washington’s Capitol Hill, for two reasons. One, it indicates Abe’s support is dwindling within the political faction—Mori’s—that championed his rise. Two, when even a dud like Mori is criticizing you, it’s time to quit and write your memoirs.

Mori led the government from April 2000 to April 2001—hardly a proud period in Japanese history. Aside from overseeing an acceleration of Japan’s slide into deflation and banking crises, he’s best remembered for myriad gaffes.

When, as prime minister, Mori learned a US submarine had accidentally rammed and sunk the Japanese fishing boat Ehime Maru, killing nine students and teachers, he famously continued his round of golf. He antagonized half of Japan’s population by blaming overeducation of women for the falling birthrate. He unnerved Asian neighbors still smarting from World War II by calling Japan a nation of gods with the Emperor at its center.

Abe’s staying

When someone with so undistinguished a tenure says Abe may not be up to the task, that’s, well, saying something. Yet Abe claims he’ll stay on, displaying a stubbornness more associated with his ally, US President George W. Bush. Abe should indeed step down; he’s even less popular in Japan than Bush is in the US, according to some recent polls.

Abe, 52, says he needs more time to implement his reform program, whatever that is. Investors would love to see Abe accelerate the upgrades championed by his predecessor, Junichiro Koizumi. Japan needs to deregulate industries, increase productivity, adjust to a rapidly aging population and learn to grow without the dual crutches of ultra-low interest rates and a debt-to-gross-domestic-product ratio that’s by far the largest among developed nations.

Distractions

Trouble is, Abe is focused elsewhere, like endeavoring to rewrite Japan’s constitution and promote patriotism among youngsters. That’s all well and good, yet Japan is still battling deflation even though solid growth has returned. It’s a reminder that Koizumi’s reforms remain largely unimplemented and that Abe’s government has been worrisomely complacent on the economy.

Voters abandoned Abe amid anger over missing pension records and scandals that led to the suicide of one minister and the resignations of two others.

Yet, Abe’s bigger failing is setting back Japan’s reform process. After less than one year of Abe, Japan Inc. has made a noticeable comeback. Things such as cross shareholdings between companies and poison pills to combat takeovers are more common now than at the end of Koizumi’s tenure.

Koizumi doesn’t deserve too much credit. He antagonized China and South Korea with his visits to Yasukuni, a shrine that critics say glorifies Japanese militarism. And his economic plans were a broad blueprint meant for his successor to implement. Abe has proven himself incapable of doing that.

Losing influence

If investors are underwhelmed by Abe’s economic tutelage thus far, just wait until the new political pecking order takes hold. While Abe has been distracted, steady growth gave him a window of opportunity to get under the economy’s hood. Now, even if Abe rediscovers the economy, he lacks the clout.

Hopes that Japan would intensify efforts to improve corporate governance, rein in its massive debt and tackle the question of how to compete with an ascendant China and an India that isn’t far behind just received another setback.

None of this means Japan is about to slide back into recession, nor is its financial system about to collapse. The recovery is for real, banks are stable and corporate profits are rolling in.

Yet there’s a reason the Nikkei 225 Stock Average and the broader Topix index are roughly flat this year. Investors won’t get really excited about the recovery until consumers increase spending, making the revival about more than just exports and business investment. That had yet to happen.

Cart and horse

Japan’s policymaking apparatus remains stuck with a cart-and-horse dilemma. Politicians seem to think the roughly 2.5-percent growth Japan is enjoying will eventually enliven household spending. Many investors argue that policy changes are needed to boost consumption.

And so, expect more of the same from Japan, policy-wise: negligible interest rates, a weak-yen policy and halfhearted efforts to get control over public debt. Don’t expect the kinds of bold steps Japan needs to maintain its high standard of living in a region increasingly dominated by low-cost upstarts.

Abe may seem like the big loser following Sunday’s elections. Japan’s consumers and investors may end up being the real losers.

William Pesek is a Bloomberg News columnist. The opinions expressed are his own.

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Vanity of vanities

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