The Carnegie Endowment for International Peace held a call on Japan’s snap parliamentary elections on December 14 with Jim Schoff and Uri Dadush.

Listen to the call.

Tom Carver: Hello, everyone. This is Tom Carver. I'm vice president at the Carnegie Endowment, and this is a media call on Japan's parliamentary elections which are scheduled for December 14th, in a few days' time. This call is on the record.

I'm very pleased to say that I have with me here Jim Schoff, who is a senior associate at Carnegie Endowment and our resident expert on Japan, and Uri Dadush, who is a nonresident senior associate and from our Global Economics Program. So Jim will obviously speak to the politics of the situation and Uri can speak to the economics of it.

Let's start with you, Jim. He obviously called a snap election – this is the prime minister, Shinzo Abe, a few weeks ago. It's two years earlier than they needed to call an election. Can you just give us a bit of background as to why he did this, in your opinion, and what he hopes to gain out of it?

Jim Schoff: Sure. Thank you, Tom, and thanks to everyone for joining. I'm calling this the election that only a Japanese political junkie would love. We're going to have possibly the lowest postwar turnout in an election that we've seen. The ostensible election trigger is actually a nonissue in the campaign, which is to validate Prime Minister Abe's decision to postpone the second consumption tax hike. So he says he needs to get input and approval from the voters and that this is a referendum on Abenomics and his economic policy, and forecasts right now show that we may end up with relatively little difference in the before and after of the ruling coalition's strength in the diet.

So what's interesting about it? I think there are a couple of big issues at stake for Japan and some for the United States as well. The first is how will the results impact the drive for economic reform? How big will the LDP and Prime Minister Abe gain significantly from a very weak opposition caught off-guard by the snap election and the fact that there's very little alternative, despite the fact that there's some economic slowdown going on, and will this give him the momentum to go forward and spend – give him some political capital to spend on some key issues?

And then, I think what's really interesting, will there be some long-term effects on the political landscape in Japan? The coalition strength, the ruling coalition's strength could increase. You could see the Japan Restoration Party, Innovation Party experiment, be crushed. The Future Generation Party, kind of a farther right experiment. The idea that Japan was drifting to the right politically could also see significant losses, so we could put to rest maybe that Japan is going in that direction. And if the Komeito Party and the Japan Communist Party gain at the expense of those two parties, then I really do think that that rightward drift argument is over.

I'll – there's a bunch of other issues we can talk about. The horse race that's going on, there's some interesting races going on, and then there's some implications for the United States, I think, down the line, but I'll stop there.

Carver: Yeah, let's get to that. But I just wanna go back to the original thing. I mean, is he doing this for political – primarily for political reasons or primarily because he needs to because of the economics are not looking good, in your opinion?

Schoff: No, he primarily – he's doing it because he's buying himself an extra two years because the next – right now, the economic picture is not good, but he needs more time for the economy to recover based on the policies he's putting forward.

At the same time, he has some sensitive security legislation to reform what the Japanese Self Defense Forces can do. That's not politically popular. He wants to restart nuclear reactors in Japan. That's not politically popular. So a year or two from now, those issues could be more coming to the fore and the opposition could be a little stronger by then. By striking now, he catches everybody off-guard, buys himself an extra two years, and locks it in going forward.

Carver: So it's quite a savvy political move.

Schoff: It is, and you have to fault the opposition, the Democratic Party of Japan. Their election deterrents failed. They never scared Abe at all that they were somehow ready or prepared for this, and they caught completely off-guard and, in a sense, they invited Abe to do this.

 Carver: Okay. Let's just move to the economics before we open up the lines. Uri, how – is Abenomics failing?

Uri Dadush: It's too early to tell whether Abenomics is failing. You have to give credit for the aggressiveness of the policy that is being pursued. The monetary stimulus is on a kind of historic scale. Then there was a significant fiscal stimulus at the start 2013, beginning 2014.

Then there is a big increase in the consumption tax, which is needed for long-term fiscal consolidation and to plan to do more in the future. This is all very aggressive. Also aggressive is, on paper, the third item of Abenomics, which is the structural reform, which in my view, is by far the most important arrow because Japan's problems are structural.

They're not primarily cyclical. They have to do with institutions, incentives, the way the economy works, and unfortunately on that school, and none of the really important stuff has been touched significantly so far, and I'm referring, just in a nutshell, to labor market reform, agricultural reform and an increasing the labor force through increased women participation and, of course, immigration. These are some of the things that would really change the long-term prospects for the Japanese economy, and so far, very little has been done.

Carver: But if he were to win this election the way Jim seems to think he will, that could give him more time to do these structural reforms.

Dadush: It could – it will certainly give him more time to do the structural reforms. Whether he will do the structural reforms is a different matter. I mean, let's remember that this is a man that already has a massive majority of the Parliament on his side. He has a mandate. I

t's not like, you know, he's teetering on the edge and yet, with Abe, just as with so many of his predecessors, he is being very coy when he's being confronted with opposition to move forward on some of these tough measures. And these statute reforms, not just in Japan, but anywhere else in the world, including, by the way, in the United States, are challenging. Very challenging.

Carver: All right. Let's see if anyone wants to ask a question.

Reporter: Can I ask a question?

Carver: Yes, please. Go ahead.

Reporter: Thank you for doing this. What if the LDP win with a big margin? What do you think the potential reaction – U.S. government's reaction will be? Do you think they would welcome the result because they can move in for the variety issues between U.S. and Japan or what do you think about that?

Carver: Jim?

Schoff: Sure. Yeah, I actually think the United States is looking for kind of a Goldilocks victory by the LDP, solid but not necessarily too overwhelming. There's been some talk that the LDP might win a supermajority outright by themselves, 317 seats. That's never happened before and, as a matter of fact, only two times before has the LDP ever, in the postwar, ever even won 300 seats.

So we want – the United States wants Abe to succeed in buying himself some extra time to move forward on the tougher economic forums that will be talked about, to be able to make a deal on TPP, for example, to go toe-to-toe with the farm lobby and maybe allow some multinational or big Japanese corporations to invest in agricultural production and cooperatives and professionalize that area, also to move forward on the defense guidelines and some of the security reforms.

But I think the United States – if Abe wins too big, he could actually get distracted, I think, by some other constitutional reforms and other bigger historical things that he wants to do that the United States, I think, feels could rile up the region, slow Japan down in terms of get Japan bogged down into some big constitutional issues, and if he spends his political capital on those issues instead of on these other things that the United States is prioritizing, maybe we wouldn't be as excited about that.

So they're definitely rooting for Abe, but I think an Abe-Komeito coalition where Abe's – the LDP still needs the Komeito is actually appealing to the United States.

The other issue I could quickly raise too is, you know, we're – the questions gonna be how Okinawa votes and the U.S. base there. We had the governor's election, and there was a resounding no from Okinawa for base location. There are four districts in Okinawa up for grabs, a couple of LDP candidates or ___ members who are – their seats are at risk caught up into this. There's not enough political power in Okinawa to try to change the decision, but this is going to be potentially yet another irritant in the implementation of that program.

Carver: Is there a fear that if he gets the supermajority on his own that there would be, like, a right-wing – a rightward shift by Japan?

Schoff: I think it's possible. The LDP itself is a relatively big tent, so – but right now, the right wing of the LDP is at the forefront and is leading the charge, which is why we keep getting into some of these historical arguments and problems with South Korea and China, et cetera, but the LDP needs not only the moderate wing of its party, which it can control to some extent, but it needs the Komeito, which has been able to water down some of the other changes to the Cabinet decision on exercising collective self-defense, for example.

So I think the Komeito is actually a very useful moderating – they pitch themselves as a brake on the LDP outright to – as part of their campaign appeal. I actually think the Komeito will pick up a lot of the protest votes that are floating. There's always a lot of undecided votes right at the last day. Now the question is how many people are not gonna come and just simply not show up? Some people are throwing their weight behind the Communist party.

Some people, I think, will throw it behind the Komeito. Last election, a lot of them threw it behind the Restoration Party, which was this third up-and-coming party. A huge gain if you look at they were at 10 percent support rate right before the election. They ended up with 21 percent of the vote because the undecided votes, 10 percent swooped in and supported them.

Right now, it's looking like they're gonna lose big. So they're gonna lose seats. Where are all those undecided voters gonna go? Are they gonna stay home or are they gonna try to lodge a protest vote? So there's, again, some of these policies.

Carver: On the opposition, why is it in such disarray?

Schoff: The main problem is the Democratic Party of Japan, the largest opposition party, after its failed experiment with leading the country, has not been able to rectify the internal policy divisions that it has. It has kind of a moderate, left, even somewhat conservative component, and it has a very strong liberal socialist leftover from the Socialist Party component in the party, strong labor union backing that they simply did not address in the aftermath.

And their idea was we've just gotta hold on and see if they can rebuild some kind of coalition in their own big tent that would draw in other opposition parties. They've not been able to do that, and right now, actually an aspect of Abenomics where he's really pushing leaning on the private companies to raise wages, to stimulate inflation in the country, is appealing to the labor unions.

So they're saying, you know, even our traditional allies, we're getting more from our traditional opponents than we were getting from our main political allies. So they've really neutered the opposition on this front, and I think you're gonna look, see the DPJ obviously is going to be looking for new leadership after this election, and we may see more fundamental political realignment in the country than we've seen in years.

Carver: Other questions?

Reporter: Hello

Carver: Yes. Hi. Please go ahead.

Reporter: I'd like to just go back to the issue of the turnout. _____ reports that this could be the lowest turnout ever since the war. How far can Abe sort of portray that as a mandate _____ among the electorate?

Schoff: Well, he can try to portray it as a mandate as much as he wants, but he won't really have one. As a matter of fact, even the resounding victory that the LDP won the last election, they actually gained fewer votes than they had the election before. This is part of the quirk of the system.

Right now, where even small gains, a small share, a leading share in the vote can give you outside gains in the seats, but also the Vice Prime Minister himself has said this is neither – this is an election with neither a tailwind nor a headwind. There's just kind of nothing there. So I think deep down they know that they don't have a huge mandate, even if they do win.

Part of my Goldilocks discussion, I guess, is I think some of the LDP politicians might easily convince themselves that they have a big mandate if they do gain over 300 seats. I mean, again, that would be something that LDP has never done in the postwar. If they end up with 302, 303 seats, and if the coalition itself ends up with more than – seats than they have now, that would be the largest coalition lead, which would exceed what Koizumi had in 2005 when he called the snap election then.

So there could be some kind of false sense of we have a mandate which allows them to go down, I think, some unproductive political roads. If they feel intense political victory that, yes we won, but we're only gonna be in power as long as we can deliver on the economy, we kinda want – we, the United States, and I think probably the Japanese voter wants the LDP to feel that sense of crisis and pressure and accountability so that they can press forward.

I mean, Uri, don't you think this issue of, you know, we've got to do something, we're in a sense of crisis is part of what has given Abe so much energy and actually has allowed them to make some of the progress that they've made so far.

Dadush: No, definitely. And I think when you think of mandate, you're gonna think not only of the last election but also of the international context within which Japan is operating, and I think Japan has a massive mandate from its partners, the United States, the G20, et cetera, to do something really radical about the Japanese economy, which in their eyes, has been faltering for a very long time. It's no longer a source of demand. And for the United States, an absolutely vital part of its rethinking, repositioning towards the Pacific, et cetera, et cetera. So I think there is international support for what he's doing as well as domestic support.

That's why I'm a little bit skeptical because – about his decision right now. I mean, you know, when you're a leader in the middle of gigantic change, you know, to sort of just throw it all up in the air, even for several weeks, and look for another mandate which everybody agrees, you know, is – I mean, we know from the surveys, domestic surveys that Abenomics is not nearly as popular as it used to be. He doesn't have to ask that question.

But you know, when you're a leader and you're really taking the front position on big change, you should be moving forward and you should be grasping the ____, and I'm afraid that's not happening yet. Now, maybe I'll be surprised. Maybe he gets his good election result and then he presses on the accelerator, but you know, leaders have done a lot more on some of these tough issues than Abe has done with much less mandate in the past, at least initially.

Carver: Okay. Others?

Reporter: Can you hear me?

Carver: Yes, we can hear you.

Reporter: Thanks for doing this. I wanted to go back to the Goldilocks analogy that Mr. Schoff was using and apply it to defense cooperation. And was wondering if you could give us kind of your impression of what would happen in the two different – in the three different scenarios, the too hot, the too cold and the just right, when it comes to, you know, improvements to collect a self-defense and just, in general, U.S.-Japan defense cooperation.

Do you see that outcomes – the three outcomes having the dramatic impact on that or it's basically gonna go whichever way it goes regardless?

Schoff: That's interesting. Too cold, which means, you know, the LDP and – either the LDP by itself or the LDP and the Komeito, you know, lose a decent number of seats in this election, I'm not expecting that, but if that happened, I think that would seriously slow down the momentum we have in the defense guideline discussion and it would water down the clarity and, to some degree, the boldness that Japan is trying to move forward on some of their security legislation that helps them deal with different contingencies around the Senkaku Islands and other disputed territory as well as cooperating with the United States in a Korea scenario.

The too hot, my concern is a little bit of what I talked about, a sense that, you know, the LDP is back and we don't even need the Komeito at this point, or we don't need them as much as we did before. And so they try to get back some of these more aggressive aspects of the Cabinet decision that were kinda left out in July. Strong conservatives and security experts in Japan, many were upset that Abe compromised too much with the Komeito to get that Cabinet decision pushed through.

There's a lot of negotiation going on over the security legislation now, so the idea is, okay, well now we have a stronger hand and we can get some of this back. I just don't think that's where the Japanese people are overall, and that's why I think this kind of quiet wave of disgruntled liberal voters are gonna deliver a muddled message somehow through this election.

But – so I don't think the United States wants or benefits from a real domestic political battle over this or a lot of popular opposition to what Japan is trying to do with the United States. Then the United States becomes a bad guy, kind of complicity as a part of this. So that's why the Goldilocks piece, I think, is most attractive. Komeito provides a useful moderating influence on what some of the stronger hawks, to lack of better word – it makes it fit with, I think, where Japan is right now, where the Japanese people are right now, and it's still very useful too to the United States, so it's a good next step for the alliance.

Carver: I guess there's one question, one name we haven't mentioned in this is China. I mean, is China a feature in this election at all, on the road as it were?

Schoff: From the political security alliance side, not a whole lot. I don't think much will change. Again, the Komeito has been traditionally seen as a little closer to China and has been a useful tool or has played a useful role in trying to help revive Japan-China ties, but not exclusively. So if Komeito gets pushed to the side, that's potentially a bit of a problem, but I don't expect that, and I think they'll continue.

They made a little bit of progress after the APEC meeting. They've got a toehold on this sheer cliff face that they have to climb up and restore Japan-China relations. So I think even Abe wants to keep going on that front. And you could argue that a solid victory and no election for about three years means he could skip Yasukuni Shrine for a couple of times and not pay any price, so not expecting a big impact either way, but if anything, could help them out, could help that effort out.

Carver: All right, well let's wrap it up. As I say, there will be a transcript available tomorrow at some stage for those who want to check the quotes and so forth, and of course, if you want to schedule interviews or anything in terms of follow-up, just contact Clara and she and arrange that, but thank you very much indeed for participating in the call, and it is now ended.