Friday, August 9, 2013

Will Abe lead on the consumption tax?

On Friday, Prime Minister Abe Shinzō headed off (jp) to the mountains in Yamanashi prefecture for an eleven-day summer holiday. He leaves behind a growing debate in Tokyo about the wisdom of proceeding as planned with the consumption tax hike scheduled to be phased in from 2014-2015 (5% to 8% in April 2014, 8% to 10% in October 2015). Abe has said he will make his decision about the tax sometime over the next two months, leaving proponents and opponents of the hike to make their cases once again.

Arguably the supporters of the tax hike won several victories this week.

First, at the start of the week the IMF advised the Japanese government to stick to the plan as concluded in 2012, arguing that the tax hike will signal the government's commitment to fiscal restructuring and will therefore bolster investor confidence. The IMF has been saying that the consumption tax rate should rise to 15% for years now, so its advice for Japan is not new. But the fund's intervention gives proponents an important international backer as they make their case to the prime minister.

The next victory for proponents of the hike came on Thursday. Bank of Japan President Kuroda Haruhiko, speaking to the press after the BOJ policy board's regular meeting, voiced his support for raising the consumption tax and said (jp) that the BOJ's radical monetary policies and the planned hike were not incompatible. Like the IMF, Kuroda stressed the importance of reassuring investors that the Japanese government is serious about getting its financial house in order.

Finally, on Friday the Nikkei Shimbun ran a major article (jp; registration required) — basically an editorial — addressed to senior government officials who are "nervous" about the consumption tax increase that sought to reassure them that raising the consumption tax next year would not be like raising the consumption tax from 3% to 5% in 1997. The article opens by explaining that the 1997 hike came in the midst of a regional financial crisis and at a time when the balance sheets of Japanese banks and corporations were loaded with bad debts. Having established that 1997 was a particularly bad time to raise the consumption tax, Nikkei pivots to say that since banks and businesses have more "stamina" today, it's appropriate to take on the challenge of the national debt in order to reassure global financial markets, which, Nikkei reminds us, are roughly three times larger than they were in 1995. With that in mind, the article warns that at the first sign that the government is not serious about raising the tax, investors will short Japan in a heartbeat.

As arguments on behalf of austerity go, there is nothing earth shattering in the Nikkei article, in fact it contains pretty much the same arguments that Paul Krugman has critiqued for years, including in this 2010 column: the "confidence fairy" and the "bond vigilantes." But the arguments are less important than the reality that Japan's powers that be are lined up behind raising on the consumption tax on schedule in April 2014. The tax hike not only has the support of the BOJ president and Japan's leading business daily, but also the head of Keidanren (jp) its most powerful business lobby; Amari Akira, Abe's own minister for economic and fiscal policy; and leading members of the LDP, which has, after all, campaigned on raising the consumption tax for the last several elections. Of course, it almost goes without saying that the ministry of finance wants to see the tax hike proceed as scheduled.

The forces arrayed against the tax, at least at the elite level, are thinner. Hamada Kōichi and Honda Etsuro, Abe's leading economic advisers, have both voiced skepticism about the current tax hike plan, with Professor Honda's arguing (jp) that the tax should be phased in at 1% a year rather than in two phases. Saitō Tetsuo, the chair of LDP coalition partner Komeitō's taxation committee, has stressed the need to take economic conditions into consideration when deciding whether to go forward with the hike. Beyond elite circles, perhaps most significant fact is that the public is overwhelmingly opposed to the tax hike: Asahi's post-election opinion poll found (jp) 58% opposed and only 30% in favor.

Given that sustainable, robust growth is still far from assured — and that wages have yet to rise, suggesting that consumers would really feel the sting of the tax hike — the facts are probably on the side of the skeptics. The proponents still have to explain (1) why the confidence of global markets is so important when, as Michael Cucek reminds us, Japan is largely invulnerable to "bond vigilantes" and (2) why confidence would evaporate now as opposed to anytime over the past decade of swollen deficits. If anything, delaying the consumption tax hike should signal to financial markets that the Japanese government is serious about reviving Japan's economy.

But this week shows that the facts have an uphill battle against a good portion of the Japanese establishment (with the support of international actors like the IMF). After finally securing a plan in 2012 to raise the consumption tax, they are not about to let the Abe government back out of its commitment. With the final decision resting on Abe's shoulders, this issue is as good a chance as any for Abe to show that he can be the strong, decisive leader he claims to be.

Friday, August 2, 2013

The real problem with Asō's gaffe

After the uprising of the 17th of June
The Secretary of the Writers' Union
Had leaflets distributed in the Stalinallee
Stating that the people
Had forfeited the confidence of the government
And could win it back only
By redoubled efforts.
Would it not be easier
In that case for the government
To dissolve the people
And elect another?

Bertolt Brecht, "Die Lösung" (1953)
Deputy Prime Minister/Finance Minister Asō Tarō kicked off the second leg of the second Abe government with a fine contribution to the hall of fame of gaffes committed by Japanese politicians.

Speaking at a symposium hosted by the right-wing Japan Institute for National Fundamentals, Asō spoke about how the Abe government should approach constitution revision. He said:
Now if you say "let’s do it quietly," you need to look back at the Weimar Constitution, whose amendment went unnoticed. It was changed before most people realized it had happened. We need to learn from this. I have absolutely no intention of rejecting democracy. But I don’t want to see us make these decisions in the midst of an uproar. 
(That's from a translation by Peter Durfee; the full text of his remarks can be found here.)
The resulting international uproar — usually presented under headlines like "Japanese Finance Minister Taro Aso comes under fire for Nazi remarks" — has resulted in Asō's coming under pressure to resign from opposition parties, and under pressure from the prime minister (jp) to retract his remarks. He has retracted, but has said he will not resign.

However, in my reading of his remarks, Asō's interpretation of how the Weimar constitution was revised may have been the least offensive aspect of his speech. What's offensive about Asō's speech is the arrogant disdain for the messy reality of democracy, the lament of every would-be utopian in history eager to ram the square peg of humanity into their round hole of choice. Asō repeatedly bemoans the "boisterousness," "tumultuousness,"and "uproariousness" present in public discussion of constitution revision. He seems to say, Why can't the people see that we know what's best for them? Can't they see that the facts demand revision? I read this less as a blueprint for revision than as a whine about how it's all the fault of the public and the mass media for how little success Japan's revisionist right has had when it comes to building a consensus in favor of their vision of the constitution.

Why shouldn't the debate be boisterous? Why shouldn't there be uproarious and fierce opposition when the debate is about the document that serves as the nation's moral center — especially when the LDP's draft makes no secret of its plans to change the values enshrined in the constitution?  Why shouldn't Japanese defenders of the constitution feel just as strongly about defending a document — a document that, whatever its origins, has become an important pillar of postwar Japanese society — as the revisionists feel about changing it? Who are Abe, Asō, and company to decide whether a debate is being conducted appropriately or not?

At its best, liberal democracy is "boisterous" and "uproarious," because if the people have the freedom to speak their minds, there is bound to be a tumult. Politicians seeking order, politeness, and decorum can find some fine examples in Japan's immediate neighborhood.

In the final analysis, I don't think Asō was longing for an end to democracy or outlining a secret plan for constitutional revision. Rather, he has once again revealed a fundamental fact about his and Abe's worldview: they have no problem stating their love for democracy as an abstract idea, a value to be promoted in East Asia and a rhetorical cudgel with which to bludgeon China, but they have little love for democracy as it is actually practiced in Japan.

Sunday, July 21, 2013

Abe's underwhelming victory

Abe Shinzō's LDP-led coalition with Komeitō got its wish Sunday, winning enough seats to retake control of the House of Councillors for the government and ending the "twisted" Diet for at least the next three years. With five seats still undecided, the LDP and Kōmeitō have secured 134 seats, comfortably over the majority threshold of 122 seats.

But it is difficult to declare Sunday's results an strong mandate for Abe and his program.

First, the LDP fell short of winning an outright majority. The LDP is once again the largest party in the HOC, but it will still need to secure the votes of Kōmeitō to pass legislation in the upper chamber. It is unclear what threats Kōmeitō can wield to modify the government's behavior — I doubt whether it can credibly threaten to leave the coalition — but since they wield the deciding votes in the HOC, they will be in a position to influence the government's agenda, which will likely have consequences for nuclear energy and constitution revision. One could argue that Kōmeitō was the real winner on Sunday.

Second, the pro-revision parties fell short of a supermajority. The pro-constitution revision parties needed to win at least 162 seats to be in a position to pass constitutional amendments in the HOC. Given that the pro-revision parties don't even share the same vision for the constitution, the road to revision is no less steep today than it was before the HOC election. That doesn't mean Abe won't try to cobble together some kind of revisionist alliance in the HOC, but I think the pattern I outlined in May will hold:
At the very least, we're probably seeing the emergence of what will likely be a persistent pattern should Abe remain in power. Abe and his lieutenants will talk about the need to revise the constitution, Kōmeitō will express its unease about revision, what's left of the left wing will sound the alarm, public opinion polls will reveal skepticism about revision, LDP grandees will suggest backing down...and rinse and repeat.
It is difficult to view the HOC election as public endorsement for a shift to the right.

Instead, we should view the HOC election as a sign that the Japanese political system is not "stable" or healthy. There is an emerging narrative that because the Abe government looks durable, the Japanese political system has achieved some stability after years of turmoil and ineffectual governments.  Abe may well be in a position to last, although we won't really know until he actually has to make a controversial decision (about, say, TPP or nuclear power or the consumption tax). But the election returns suggest that these will be trying years for Japanese democracy. The DPJ has more or less imploded, and seemed to spend more time during the campaign fighting amongst itself than against the government. The Communists soaked up anti-Abe protest votes and won eight seats, including three district seats, but the ability to win protest votes does not necessarily make for an effective opposition party. As Michael Cucek noted before the election, none of the opposition parties has anything constructive to say about the problems facing Japan. Abenomics is winning public support at least in part because it's the only policy program on offer. Kōmeitō is basically left being the opposition-in-government. I think there are votes for a center-left program, but no party or leader has articulated one in simple, easily understood terms. Whether a coherent, effective large party can emerge from the DPJ's wreckage is one of the most important questions in Japanese politics in the years to come.

Finally, policy challenges remain. With control of both houses, Abe has no excuses. He cannot hide behind the "twisted Diet" any longer. He is going to have to deliver results and make decisions with the potential to trigger major public opposition. The media, of course, will be waiting to pounce at the first sign that the government is slipping — to say nothing of Abe's rivals within the LDP. The public is still opposed to nuclear restarts and is still opposed to raising the consumption tax next year. While the public as a whole supports Japanese participation in TPP, the LDP still includes an unwieldy mix of representatives from across the country, suggesting the possibility of a postal privatization-like confrontation between the urban and rural wings of the party.

In short, the HOC election was not nearly as transformative as it may seem. By failing to win an independent majority in the HOC, the LDP will continue to depend on Komeitō to pass legislation. But by winning a majority for the coalition, Abe will now be expected to use his political power to follow through on his pledge to revitalize Japan's economy — with the public, the media, and rivals within the LDP ready to turn on him should he falter.

Sunday, July 7, 2013

Will nuclear restarts derail Abe? (Probably not.)

Say what you will about the LDP, but the party has been fairly open about its preference for nuclear energy and restarting Japan's idled reactors as soon as possible.

The party may be about to get its wish.

On July 8th, four regional power companies will apply to the Nuclear Regulation Authority to begin compulsory inspections as a first step towards restarting their reactors. It will be months before the inspections will be concluded and plants reopened, but Monday appears to mark the beginning of the reintroduction of nuclear energy to Japan's energy mix in a significant way.

The NRA is central to the LDP's and Abe's soft-pedaling of the nuclear issue. Lest the Abe government be faced with this...

Source: Asahi Shimbun, Asia & Japan Watch, 30 June 2012

the LDP and the prime minister have repeatedly said that they will defer to the judgment of the authority when it comes to restarting reactors, including the pledge in the party's manifesto last year and again this year.

As long as the authority was not yet reviewing applications to restart reactors, deferring to the authority was an easy position to take. But now both the authority and the Abe government will be tested. For the NRA, it will be tested to show its independence from political decision makers, who have said they will respect the authority's decisions but have made no secret in wanting reactors put back online as soon as possible. For Abe, the pledge to defer to the NRA's judgment will be equally tested, especially if the authority rules against fast restarts for some reactors.

Perhaps the best outcome for both parties would be for some reactors to be restarted and others rejected for the time being, thereby allowing Abe to show his willingness to respect the NRA's decisions while still pocketing the political benefits of less dependence on imported energy. It might also defuse some of the political opposition — preventing demonstrations like those seen above, for example — by showing that the government really did defer to the regulators. It may also defuse some of the opposition from Komeito, the LDP's coalition partner. The latest Asahi polling, discussed here, shows that the public is still opposed to restarts by a considerable margin (29% in favor, 53% opposed), but the issue is a second-tier issue and it is by no means certain that Abe would face the kind of demonstrations his predecessors faced, especially if Abe can pass the buck for restarts to the NRA.

Meanwhile, by rejecting some applications for early restarts, the NRA could show its independence and demonstrate that it actually has some regulatory clout.

Mind you, it is beyond my expertise to say what the inspections actually will produce. (This NHK article [jp] has a decent rundown of the new regulations upon which inspections will be based.) But it does seem that, while the public is firmly opposed to restarts, there is a way for Abe to avoid taking a serious political blow from the nuclear question.

Pinpointing public support for Abenomics

With the upper house election campaign in full swing — Michael Cucek has the campaign numbers breakdown here — there is no shortage of public opinion polling to wade through. Because the outcome of the election is more or less a foregone conclusion, not much of it is very interesting.

However, it is still worth looking at if only to understand how the public is evaluating Abe's performance and what their priorities are as the campaign trucks fan out across the country.

I've been paying particular attention to several questions in Asahi's national tracking poll pertaining to public assessment of Abe's economic policies. In addition to tracking the headline approval rating, I've been looking at one question which asks respondents to assess whether they approve of his economic policies (previously whether they believe Abenomics holds promise for growth), and another which asks whether they believe Abe's policies are linked to increases in wages and employment.

In the latest Asahi poll (jp), conducted a week after the previous one, public support for Abe's economic policies improved slightly, rising to 55% approval from 51%, and, more importantly, disapproval fell from 31% to 23%.

Source: Asahi Shimbun
Abe also saw a slight shift in his favor when it comes to whether the public believes his policies are connected to improvements in wages and employment.

Source: Asahi Shimbun
Finally, this latest poll introduced a new question, asking respondents which policy they would like to see debated more during the upper house election campaign. The poll is consistent with those dating back years: the public is most interested in economic growth and social security, followed by issues like the consumption tax and energy, and finally TPP, foreign policy, and the constitution. 

Source: Asahi Shimbun, 7 July 2013
The fluctuations in support for Abenomics a few points one way or another probably don't mean much in the scheme of things, not least because last week's and this week's polls have had relatively small sample sizes compared to polls conducted earlier in the year. After getting responses from between 1500 and 2000 households for most of the year, the last two polls have had fewer than 1100 respondents (1039 last week and 1084 this week). By comparison, the June 11th poll that showed a twelve-point drop in support for Abe's economic policies had 1781 respondents. With approximately 51.8 million households in Japan, 1084 respondents gives us a margin of error of ± 3% at 95% confidence.

Thankfully, Yomiuri poll (jp) in late June found nearly identical results with more respondents (1821) when it asked whether respondents approved or disapproved of Abenomics: 54% approval, 31% disapproval.

Thus we can say with a reasonable amount of confidence that public support for Abenomics remains at just above 50%.

That, ultimately, is the most important number to watch. Because public support for the Abe cabinet rests so much on public support for its policies in the areas that matter most to Japanese citizens, i.e. the health of the economy, as long as the public supports Abenomics, they will support Abe. At the same time, if and when the public turns against Abenomics, Abe will be in trouble to the extent that growing unpopularity will create space for critics within his own party to undermine his program.

At which point Abe will be pressed to show just how much he believes in the slogan he has lifted from Margaret Thatcher (jp): There Is No Alternative.

Tuesday, July 2, 2013

Public support for Abenomics cools slightly, but the LDP will win anyway

With the campaign for the July 21st upper house election set to begin officially on Thursday, the Asahi Shimbun has released the results of its latest opinion polling on the Abe government.

The poll contains good news and bad news for Abe Shinzō.

The good news for the PM is that there remains no doubt that the LDP will win big. When asked who they will vote for in proportional representation voting — which elects forty-eight legislators from national lists — 44% said LDP, 7% each for the DPJ, JRP, and Your Party, Communists 5%, Komeito 4%, Socialists 3%, and People's Life 1%. Another 19% said they were still undecided. If we assume that the undecideds will break along the same lines as the decideds and that approximately 54 million votes will be cast in proportional balloting (roughly the number of votes cast in the 2007 and 2010 elections), the LDP will win twenty-nine seats, the DPJ, JRP, and YP four seats each, the JCP three seats, and Komeito and the Socialists two seats each.1

To reach the UH majority threshold of 122 seats, the LDP will need to win forty-two of seventy-three district seats, which, given the above figures, should probably be doable. The DPJ happens to be defending forty-two seats, the beneficiaries of its 2007 victory over the Abe-led LDP. The party recognizes it will come nowhere close to that total and will run no more than a single candidate in each district. Reaching the two-thirds threshold of 162 seats, necessary for constitution revision, is probably out of reach, certainly for the LDP by itself since it would fall short even if it were to win all seventy-three district seats.

The bad news is that the Abe government's headline approval rating continues to head the wrong direction. His approval rating fell another four points, to 54%.

More significantly, the Japanese public is no more enthusiastic about Abenomics than it was in early June. In response to the question whether they approve of Abe's economic policies, 50% said yes, while 31% said no, virtually identical to last month. (Although this time the poll asked whether respondents approve or disapprove, whereas earlier polls asked whether they thought Abe's policies were promising for growth.) Meanwhile, there was a slight uptick in the percentage of respondents who did not believe that Abe's policies are linked to higher wages and employment, 48% compared to 32% who believe they are.

Meanwhile, when it comes to two of the biggest questions facing the Abe government — whether to restart nuclear reactors and whether to raise the consumption tax rate on schedule in April 2014 — the public remains firmly opposed to both. Only 29% support restarting the reactors, with 53% opposed, a slight decrease from last month, but without a corresponding increase in support. 51% of respondents said they opposed raising the consumption tax, with 37% in favor. The public also remains opposed to revising Article 96 of the constitution, with 47% opposed and 34% in favor.

There are a couple bright spots for Abe — nearly 50% approval of foreign and security policies, 50% in favor of Japanese participation in TPP —but on the whole the impression is that public excitement about Abenomics has cooled. The public will give Abe a majority in the Upper House this month, but the days of unbridled enthusiasm about the Abe program have passed. Perhaps that shouldn't be too surprising, given that recent economic gains may not have reached Japanese households yet. Abe's overall support numbers may get a bump from the election, but it is increasingly clear that the important number to watch are public attitudes to Abenomics, which seem to determine the strength of Abe's public support.

1 PR seats are apportioned using the D'Hondt method. I made these estimations using this calculator.

Wednesday, June 26, 2013

The Japanese public's ingrained distrust of investor capitalism

In the last part of this series of posts reviewing Japanese public opinion about economic policy during the "lost decades," I will explore public opinion polls regarding attitudes towards savings and investment and financial reform. Years of public opinion polls support what the Bank of Japan's data on  Japan's Flow of Funds shows: since the bursting of the asset bubble, Japanese households do not show much interest in owning equities, to say nothing of more complex financial instruments. (The BOJ explains the components of each category of asset here; flow of funds data can be found here.)

Households are by no means the only actors whose investment decisions are worth examining — for example, markets are closely watching whether and how much Japanese pension funds will shift from bond holdings to equities or other assets — but the decisions made by households and the attitudes expressed by Japanese citizens in opinion polls are revealing when it comes to understanding how Japanese think about Japanese capitalism, the role of investing and shareholding, and the degree to which they have embraced (and will embrace) reforms to encourage more risk taking and competition in the Japanese economy.

By and large, Japanese households have been reluctant to embrace shareholder capitalism. Equities made up nearly a fifth of household assets at the peak of the asset bubble, but since then household shareholding has fallen dramatically, notwithstanding Japan's "Big Bang" financial reforms and other government efforts to encourage investment. Despite low interest rates on bank deposits, low yields on government bonds, and, as I have documented previously, persistent fears about the reliability of the public pension system, Japanese households have been extremely reluctant to move into higher-yielding assets. It is important to keep this reality in mind as one assesses the Abe government's likelihood of success in triggering sustainable growth; Abenomics has to change ingrained attitudes about saving and investment that have heretofore proved resistant to policy change and macroeconomic change.

Pollsters began taking more of an interest in Japanese attitudes regarding the financial sector in the late 1990s as the Hashimoto government implemented the "Big Bang" reforms, which deregulated foreign exchange and securities markets, the insurance industry, and the banking sector. The reforms were, among other things, supposed to make it easier for households to diversify their investments. However, a poll conducted by Asahi in March 1998 found respondents unsure of financial reform. Asked whether they were hopeful about the Japanese-style "Big Bang," only 32% said they were hopeful, while 43% said they felt great anxiety and other 21% said they didn't know. When asked whether they would try to purchase higher-risk, higher-return financial instruments if it became possible to do so, only 16% said they would — 80% said they would not. The same poll found that the public mostly wanted banks to pay higher interest rates on deposits: the poll found 26% of respondents were fine with low interest rates as they were, while 66% wanted interest rates raised.

Another Asahi poll in May 1998 found respondents more favorably disposed to the "Big Bang," but not by much. Asked whether they welcomed having the responsibility to choose from a variety of financial products and being forced to decide which are profitable and which are safe, 41% said they welcomed the responsibility, 38% did not, and 14% said they did not know yet. Respondents were slightly more open to purchasing assets that would yield more than bank deposits but would also be more riskier: 21% said they would like to purchase them, 72% said they would not.

Respondents appeared somewhat more open to having greater control over retirement funds through the introduction of a Japanese-style 401(k) system. A July 1999 Asahi poll asked whether respondents would accept the greater responsibility that would come with the introduction of a defined contribution pension program: respondents favored the notion 44% to 43%. Respondents also proved more favorably disposed to participating in a 401(k)-style program than to other forms of investment. 29% said they would like to participate, with 58% opposed.

The problem, however, is that over the following decade Japanese households have not become any more favorably disposed to investing than they were when financial reforms were first introduced. Asahi polls — one from March 1997 and the other from February 2006 — illustrate the inertia of Japanese households. When asked how their households were responding to low interest rates, in both polls at least 60% of respondents said "nothing in particular." In 1997, only 7% said they were moving deposits to more profitable investments like stocks and other financial instruments. In 2006, that figure rose only to 12%.

The February 2006 poll found scant interest in investing more in equities, let alone more complex instruments. When asked whether they wanted to invest in stocks, 11% said they already did, another 15% said they would like to, and an overwhelming 65% said they would not like to purchase stocks. On the one hand, 65% is better than the March and May 1998 polls that found 80% and 72% of respondents uninterested in purchasing higher-yielding assets. On the other hand, when one considers that nearly two-thirds of respondents in February 2006 — in the midst of low interest rates, concerns about the security of public pensions, and a stock market that would make five-year highs in 2006 — expressed no interest whatsoever in stock ownership, one gets a good picture of inertia in Japanese household assets.

The poll did ask respondents to explain their answers to that question. Among the 26% who said they either already invested or wanted to invest in stocks, 11% cited higher returns, 8% said they bought stocks because it had become easier to do so, 4% said because they thought it was interesting, and 1% said they did it in order to prepare for bank failures. Among the 65% who expressed no interest, 25% said they did not have enough money available, 17% said they feared losses, 12% said they felt it was difficult, and 5% said it was because stock investing "does not have a good image." The cautiousness of Japanese households was reinforced in the next question, which found that, if respondents were to invest, they would prefer financial instruments with relatively lower returns but with low risk of loss to higher risk, higher return instruments by a margin of 54% to 5%.

Finally, the poll asked an interesting question to gauge general attitudes about stocks and investing. Asked whether they thought it would be good to learn about stocks and investing from elementary and middle school onward, 29% said yes, 61% said no. Another question asked whether respondents felt opposition to making large profits by speculatively investing great sums of money in the stock market and elsewhere: 48% said they were opposed, 40% said they were not. Arguably these responses are clear indicators of the degree to which investing was still considered abnormal, perhaps even unseemly. Not only did a sizable majority of respondents not want to own stock, they did not want their children learning about the stock market and they felt there to be something illegitimate about fortunes made through speculative investments. And this poll was conducted several years before Japan would be dragged back into recession by the global financial crisis, which, as then-Prime Minister Asō Tarō repeatedly reminded his fellow Japanese, "originated from America" (i.e., home of Wall Street's casino capitalism).

A Cabinet Office poll conducted (jp) in December 2005 confirms this aversion to financial investing. 71.9% of respondents said they owned no securities whatsoever. Among those who owned securities, the most commonly held security was stocks (15.9%), followed by investment trusts and mutual funds (9.1%), national or local government bonds (7.7%), foreign securities (3.4%), bank and financial bonds (2.0%), industrial bonds (1.3%), and derivatives (.2%). The survey also asked whether respondents owned, wanted to own, did not want to own stocks, or own stocks but want to stop. These figures are similar to the February 2006 Asahi poll: 13.3% owned stocks and wanted to continue, 8.6% wanted to start investing, 2.7% wanted to quit, and 68.5% had no interest at all. Respondents' reasons were similar too. Among investors or would-be investors, 48.3% said they invested because they hoped for higher returns, 45.6% said they hoped for dividends, and 31.2% said they wanted to invest their money beyond bank deposits. Among non-investors, 39% said they lacked the knowledge, 36.9% said they feared the risk of losses from falling prices, and 34.5% said they lacked the assets and income with which to invest.

Another Cabinet Office poll, conducted in May 2007 (jp), asked questions about investing in regard to the first Abe government's "From savings to investment" program. Eighteen months after the previous Cabinet Office poll respondents were if anything even less favorably disposed to investing. After asking whether respondents had heard of the program (most knew nothing about it), the survey asked respondents why people preferred savings deposits over other investments: 
  • 52.3% said it was because they felt secure entrusting their money to banks and post offices.
  • 43.3% said it was because of the possibility of losing one's investment despite the possibility of profit.
  • 40.2% said it was because they did not know enough about stocks and other investments.
  • 32.2% said they did not know which stocks are good to purchase. 
  • 28.4% said it was because they felt a great lack of confidence in securities firms and securities markets. 
Asked how the government could promote investment, respondents were less clear:
  • 41.4% said to prepare a system to protect individual investors, strengthen explanations of the contents of financial products and their risks.
  • 38.1% said strengthen market supervision.
  • 26.9% said to reduce the tax burden for holding and trading stocks.
  • 25.5% said to simplify tax payment procedures.
  • 17.4% said to make it possible to buy stocks and other financial vehicles in various places.
  • 11.5% said to promote financial education.
By May 2007, a marginally greater number of respondents said they owned no securities whatsoever and ownership rates fell in every category except investment trusts and mutual funds and foreign securities, which were held by the same share of respondents.

Respondents were, if anything, even less inclined to invest than before. 77.1% of respondents said they either did not plan to invest in stocks (74.1%) or owned stocks but planned to quit (3%). Only 18.6% said they owned stocks and wanted to continue (11.3%) or didn't own but wanted to (7.3%). Not surprisingly, respondents were even less favorably disposed to investment trusts: 78.8% said they either had no plans to invest (76.9%) or wanted to stop (1.9%), while only 14.9% said they owned trusts (8%) or wanted to (6.9%). Interestingly, when the respondents who said they wanted to or wanted to continue to own stocks were asked why, the reasoning changed a bit from the December 2005 poll. Now 46.9% said they wanted to because of the promise of dividend payments, followed by 39.8% who said they wanted to hold stock because of the promise of gains from rising prices and 33.9% who said they wanted to diversify beyond bank deposits. Fewer said they wanted to prepare for retirement (20.2%) or to invest retirement money more effectively (10.9%). Only 3.1% said they did so because they belonged to a defined-contribution pension plan (which had been passed into law by the Koizumi government in 2001).

In short, on the eve of the global financial crisis, only approximately one in ten Japanese households owned stocks, and nearly eight out of ten households had no plans to purchase stocks. Knowledge about and desire to own other financial instruments was considerably lower. Unfortunately, I have thus far been unable to find opinion polls regarding attitudes towards investing conducted after the global financial crisis. However, as the BOJ data cited above shows, since 2008 stocks as a share of total household assets have remained consistently below 10% after a brief spike during the latter part of the Koizumi era. Considering the reasons given by Japanese for not wanting to invest, it is hard to believe that their attitudes towards financial markets have changed dramatically. It is similarly hard to believe that recent volatility in the markets will lead more Japanese households to invest.

It is therefore important to remember, in the midst of enthusiasm about Abenomics, that the Japanese public has repeatedly showed itself to be risk averse in its investments and deeply reluctant to shift from virtually risk-free bank deposits to other financial assets. Despite — or because of — their fears about the pension system, Japanese households have not sought higher yields. As a result, Japanese households by and large have not directly benefited from stock market gains under the second Abe government (and, as I've discussed before, they have probably not been the direct beneficiaries of the weak yen). This is not to declare Abenomics a failure, but rather to provide a fuller accounting of the obstacles the Abe government must overcome to succeed in its bid to trigger sustainable growth. Maybe this time will be different than in the past, but for now Japanese households do not seem poised to become more active (or activist) investors.

Monday, June 24, 2013

The Japanese public's enduring anxiety about social security

Even as the Japanese people confronted slow growth and considered whether the longstanding institutions of Japanese capitalism would be able to guarantee prosperity in the future, they faced the prospect of an aging, shrinking population and worried about the stability of Japan's social security system. As baby boomers retire, Japanese society, like other developed societies, has become increasingly worried about whether the government would be able to meet its obligations to provide social insurance, pensions, welfare and poverty relief, and eldercare.

One has to wonder about the extent to which anxiety about Japan's social safety net has influenced household decisions about consumption, savings, and investment and their appetite for higher risk, higher yield assets during the "lost decades." The question is whether public anxiety about Japan's social safety net has depressed aggregate demand beyond the basic effects of too few Japanese chasing too many goods as argued by Edward Hugh. Arguably, the DPJ's program while in government (at least for the first year or two) was implicitly based on the notion that reducing insecurity about the safety net could yield macroeconomic benefits.

In this post, I will document the persistence of public fears about the social security system during the lost decades. Since at least the late 1990s, anxiety about the stability of the future of social security has regularly ranked at or near the top of the public's priorities in economic policy, which remains the case today. Any discussion of the impact of Abenomics on the economic behavior of Japanese households has to weigh Japanese attitudes about the social safety net. If Abe is unable to ease fears about the government's ability to provide for retirees, any gains to Japan's economic performance could prove short lived.

We can see these fears about the safety net as early as 1997. A March 1997 Asahi poll asked respondents whether they felt some anxiety about their future livelihoods. 69% said they said, versus 29% who said they did not. When those 69% were asked to explain what they were anxious about, the most common response was pensions and social security (30%). Only one other reply — "my personal health" — was in the double digits (11%). The same poll asked respondents to state the degree to which they felt confident in the future of public pensions systems. 42% expressed either great (5%) or some (37%) confidence, while 55% expressed either little (44%) or no (11%) confidence.

The next year an Asahi poll found that more respondents were most uneasy about pensions and social security (30%) than about Japan's economic outlook (28%), their incomes (20%), or their jobs (13%). 

Perhaps the clearest picture of public insecurity in the late 1990s can be found in an extensive July 1999 poll on questions related to Japan's aging society. The poll was based on face-to-face interviews with 2122 respondents nationwide, marginally more than Asahi's monthly telephone polls, which usually have between 1500 and 2000 respondents.

The survey paints a portrait of wide and growing anxiety among the Japanese public about life after retirement. Asked if there is anything in particular they feel uneasy about for their retirement, 28% of respondents said they were most uneasy about living expenses and other economic concerns, the most popular choice and an increase of six points over a 1994 poll on aging issues. Even more dramatic was the finding that 85% of respondents did not believe that contemporary Japan provided for a secure retirement. The survey found the public was concerned about the "fairness" of the social security system (23% thought it fair, 68% did not); was nearly evenly divided over who should bear the burden of higher medical costs as a result of aging (25% said to make the generations currently working pay more in premiums, 32% said the elderly should pay more in premiums and fees, and 28% said that all should pay more through a consumption tax hike); and believed that most attention should be paid to pensions as opposed to health insurance or nursing care insurance. The same poll found that when asked whether they expect the state pension system to provide for them, roughly two out of three respondents either greatly (33%) or to some extent (32%) said they counted on their state pensions. 

As Japan's stagnation deepened, the public focused more on economic policy than on the safety net, and public opinion polls reflected shifting priorities. Polls during the Koizumi years simply did not ask questions about welfare, social security, or pensions. It was almost as if through his frenetic activity in other policy areas Koizumi Junichirō made the Japanese public (and the Japanese media) forget about Japan's aging society and safety net anxieties.

However, when polls did ask the public to assess the Koizumi government's social security policies, the response was not favorable. For example, in an April 2004 poll concerning Koizumi's first three years in office, 67% of respondents said they did not approve of Koizumi's pension reforms. 

By fall 2004, anxiety about the social safety net had returned to the top of the public's concerns. Asked in September what they would like the recently reshuffled Koizumi cabinet to make its top priority, 52% said pensions and welfare, topping all other choices by a considerable margin, including jobs and growth (28%). By December, dissatisfaction with the Koizumi government's handling of pensions grew, with 76% disapproval (and only 13% approval).

Of course, postal privatization dominated public discourse for the bulk of 2005, but public concerns about the pension system did not vanish: a poll taken in November 2005, after Koizumi's landslide victory in September and another cabinet reshuffle, found that 56% wanted the government to make pensions and welfare its top priority, with jobs and growth policy in second place with only 17%.

Koizumi effectively bequeathed to his successors a public hungry for the government to fix the social safety net. Polling in advance of the 2006 LDP leadership election repeatedly showed that voters wanted the election to focus on social security. For example, in January 2006, 45% of respondents said the campaign should center on "how pensions and health care ought to be," followed by 28% of respondents who wanted it to center on fiscal reconstruction and taxation. In September, after Abe Shinzō became prime minister for the first time, 43% of respondents said Abe should make pensions and welfare reform his top priority, with growth and jobs in second place with 17%. (And only 2% wanted Abe to focus on revising the constitution.) Abe, of course, suffered a crippling blow with the emergence of the "vanishing pension records" scandal, in which it was discovered that due to carelessness on the part of the Social Insurance Agency the pensions records of up to 50 million people may have been missing data. The scandal served only to heighten preexisting public fears that the social security system was not in fact secure, and ensured that it would remain a critical issue for the government to address.

The global financial crisis changed the public's priorities — but not as much as one might expect. A poll published on September 12, 2008, three days before Lehman Brothers went bankrupt, found that 40% of respondents wanted the government to focus on the economy and government finances, while 37% wanted the government to make pensions and social security its top priority. Despite the latest downturn, reforming the social security system remained high on the public agenda, especially after the DPJ took power in 2009 and appointed Nagatsuma Akira, the parliamentarian who challenged Abe on the missing pensions scandal, minister of health, labor, and welfare. Under the Kan government, social security reform became tied up with the consumption tax issue, as Kan Naoto fought to tie consumption tax revenue to social security funding, which Noda Yoshihiko ultimately succeeded at doing in 2012. A February 2011 poll actually found public support for this version of the consumption tax increase: 53% agreed with a consumption tax increase in order to secure social security funding, with only 35% opposed. (The same poll found that if asked if they support a consumption tax increase with no tie to social security, 46% were in favor and 45% opposed.)

Noda obviously struggled to make his case to the Japanese people but it was not for a lack of concern on the part of the public. In late August 2012, after the tax increase had passed both houses of the Diet, an Asahi poll found when asked how confident they were in the social security system, 64% of respondents expressed not much (47%) or no (17%) confidence in the system, compared with 35% who had full (3%) or some (32%) confidence in the system. The same poll found the public evenly divided (43% in favor versus 43% opposed) over the idea of shifting resources from spending on the elderly to spending on child care and strongly opposed (60% opposed versus 31% in favor) to charging citizens over 70 more in fees for health care.

For the moment the social safety net is once again second to economic policy in the priorities of the Japanese public. But if the Japanese people have had a constant concern over the past fifteen-twenty years, that concern is the viability of Japan's social safety net. As Koizumi discovered, if and when the economy improves, concerns over social security are bound to grow — and as Abe learned during his first government, those fears can prove fatal to a government. It is not entirely clear what the Japanese public expects their government to do to strengthen the social safety net, since support for tax increases to bolster social spending has proven so fragile. There may ultimately be nothing the government can do to reduce anxiety about the strength of the social security system. In an aging society public anxiety about the soundness of the safety net — particularly in an age of high budget deficits — may simply be an enduring fact of politics. Abe may have bought himself a temporary reprieve, but sooner or later public attention will turn back to the social security question.

The next post and the last in this series will look at public opinion polling on attitudes towards saving and investment, an important indicator of 1) how much risk Japanese households will tolerate, 2) how eager Japanese households are to participate in new-style shareholder capitalism, 3) how much households are benefiting from the Abenomics boom, and 4) the degree to which Japanese depend on the social safety net for their retirement living expenses.