Prime Minister Shinzo Abe sat down for an interview with Nikkei Business Chief Editor Masaki Higashi and spoke his mind concerning both international and domestic challenges. This year important events will take place one after another in Japan including the Imperial succession, G20 summit meeting in Osaka, and a House of Councillors election. Against the background of the international cooperation regime being shaken by the “new Cold War” between the U.S. and China, Japan’s diplomacy will be called into question this year.
Question: In 2019, important events will take place one after another including the Imperial succession and a House of Councillors election. What stance will you take in the management of the administration?
Prime Minister Shinzo Abe (hereinafter referred to as Abe): This year represents the last year of the Heisei Era and the start of a new era. As we will have a major historic turning point with the Imperial succession and a summit meeting of 19 countries and the EU (G20) slated to be held in Osaka, I want to make this year an opportunity to open the way to Japan’s future.
Twelve years ago, which was the Year of the Boar as is this year, I was prime minister. In my New Year’s remarks then, I said, “I will, without hesitation, move straight ahead to create a beautiful country.” In retrospect, I realize that I was young and very eager to fulfill my responsibilities. In fact, contrary to the folk belief, the boar is a flexible animal. It does not run around recklessly and is able to dodge obstacles while running at 50 km per hour. I intend to manage my administration with speed and flexibility of the boar and at the same time with humility and generosity.
Q: The consumption tax rate is scheduled to rise to ten percent in October. The government is preparing substantial measures to ease the burden on the people, but some consumers say, “The measures are too complicated to understand.”
Abe: The size of the real burden on the people from raising the consumption tax rate this time will be limited to about 2 trillion yen thanks to making early childhood education free, reduced tax rates, and other measures. In response, the government will implement budgetary measures worth 2 trillion yen including reward points for cashless payments. In addition, the administration will reduce taxes on automobiles and houses, so all together the government’s measures will be around 2.3 trillion yen, which is more than the burden on the people.
For example, if you buy a new car after October 1 this year, you will receive a 1% tax reduction at the time of purchase in addition to an automobile tax reduction of up to 4,500 yen, which will continue every year. This is a significant benefit. With respect to the reduced tax rate for food, if you eat your order served on the tray at the restaurant, the consumption tax will be 10%, whereas if you take out your order, the tax will be 8%. This will be confirmed at the time of payment, so the process will not be so complicated. As for reward points, the system has already been instituted in various ways in our lives. In foreign countries, especially in China, cashless shopping is a way of life. As it is expected that the number of foreign tourists will increase toward the Tokyo Olympic and Paralympic Games, I want businesses to take advantage of the opportunity. In order for the people to be able to fully utilize these measures, the government will do its utmost to make them familiar to the public.
Q: The government believes it is highly possible that the present economic expansion has tied the longest expansion in the postwar era. However, due to concerns about economic recession, stock prices undergo violent fluctuations. How will the government respond to such growing risk?
Abe: Various concerns about the future prospect of global economy are pointed out. It is obvious, however, that Japan’s economic fundamentals including the job environment are solid. Of course, we will closely monitor risks and make thoroughgoing preparations for economic and fiscal policy management. In addition, as the host of the G20 summit, rather than emphasize the differences in our positions, we will promote international cooperation to continue stable economic growth by seeking points where we can cooperate with one another. To achieve this goal, I want to play a leading role.
Q: The business community seems to be losing confidence in itself because maintaining technological superiority is becoming difficult. What kind of economic system does the government aim to build and with what kind of growth strategy will the government try to support corporate efforts?
Abe: I think the business community lost confidence in itself more than ever around the time when we returned to power in 2012 because Japan was suffering from a deflationary recession back then. From there we promoted Abenomics and have been realizing economic growth since then.
The biggest challenge our country faces is the declining birthrate and aging population. A falling population means fewer workers and consumers. In order to deal with this challenge, we have been supporting motivated women and seniors to participate in the workforce through such measures as improving daycare services. Further, by proceeding with work-style reform, including rectifying long working hours, we’d like to create a society where all citizens in various situations are dynamically engaged by fully exercising their skills.
We’ll start providing free preschool education in October this year and free higher education for students truly in need of support in April next year. We’ll boldly invest in children who create the future by significantly shifting the social security system to one for all generations. Further, we’ll begin accepting foreign human resources this spring in order to tackle the serious labor shortage. We’re planning to accept up to 340,000 workers over the next five years. That represents the largest intake of foreign workers ever in Japan.
Turning to consumption, if we look at the world, economic growth is rapidly producing a lot of powerful consumers. The 11-nation Trans-Pacific Partnership (TPP) trade deal without the U.S. came into force at the end of last year and an economic partnership agreement (EPA) with the EU will become effective in February this year. We’ll support corporations rising to the challenge of expanding overseas to exploit brisk global demand and continue to lead the development of free and fair rules in order.
Japan has more room for growth
Q: In addition to those efforts, the government is proposing to realize the “Society 5.0,” in which digitalization solves all sorts of problems.
Abe: That’s right. The world is in the midst of the Fourth Industrial Revolution. Innovations such as AI, big data, and robots have a great potential for resolving such social challenges as a low birthrate and aging population. Achieving the Society 5.0 ahead of other countries in the world is our growth strategy that opens a future for Japan. We’ll work on the strategy with the business community.
To achieve that goal, we’ll boldly reform outdated regulations and systems. We’ll reassess existing regulations in various fields, such as transportation, healthcare, and education. We’ll also set rules for the new era including the creation of an international data flow zone ahead of the rest of the world. I believe capturing global demand by dramatically enhancing productivity with cutting-edge technology will give Japan more room for growth.
Q: So you mean we don’t have to worry about the future?
Abe: A decline in the working-age population is a tough condition for growth. But we can grow if we do what we have to do. That’s what the government has proved for the past six years.
Q: We’re now in an age where the competitive edge of companies and countries is determined by how to utilize data possessed by companies and others.
Abe: The volume of data available in the world has increased 15-fold over the past decade. Data is a new resource in the age of AI and big data. It is also a source of innovation in the Society 5.0 age. So a fierce battle over data is being waged in the world. In order to achieve data-driven innovation, we need to create an environment for data to circulate freely.
To that end we need a system backed by trust. We’ll spearhead the global effort to spread a free and open international data flow zone under fair and reciprocal rules while securing privacy and security.
In ensuring cybersecurity, it’s extremely important not to procure equipment embedded with malicious functions such as functions for the theft or destruction of information or for impeding information systems.
Another major issue is to ensure small and medium-sized enterprises engage in proper transactions. For SMEs, e-commerce transactions represent a major opportunity to expand their businesses, but these companies will not be able to seize that opportunity if unfair transactions become widespread. I would like Japan to work on developing such rules.
Enhance free trade by creating fair rules
Q: Will responding to the digital economy and promoting free trade be key agenda items for the G20?
Abe: I understand that Nikkei Business will celebrate its 50th anniversary [this year]. The World Trade Organization (WTO) has been in existence for a quarter century. [Over that time] the world economy has become more interdependent as national borders have disappeared. Newly emerging nations have posted remarkable economic development, and the digitalization of the economy has advanced dramatically. Amid this, some have become concerned that they will be left behind or that society will become unfair. Such concerns and frustrations have given rise at times to a temptation to move toward protectionism, and sharp conflicts between nations have arisen.
That is the very reason why Japan must raise high the banner of free trade. I think we should enhance free trade by facing the various concerns and frustrations and putting in place fair rules. If we do not address these concerns and frustrations, we will not be able to advance the global economy to the next level. I see it as our nation’s mission to widen the free and fair economic zone through such pacts as TPP11, Japan’s EPA with the EU, and the Regional Comprehensive Economic Partnership (RCEP), which will see the participation of such countries as China and India.
Moreover, to restore confidence in the world trade system, the WTO needs to be reformed. In the fields of subsidies and digital [trade], Japan will lead the creation of fair rules for a new era by partnering with the United States and Europe.
As chair of the G20, Japan will fulfill its responsibility to maintain and strengthen a free and fair global economic order.
Globalization will be a key theme at the World Economic Forum Annual Meeting (Davos), which opens in Switzerland on Jan. 22. In addition to the promotion of free trade, innovation has great potential to solve disparities and other social issues. I plan to attend the conference and will stress the need to create a new system based on trust, including the creation of an international zone for [safe] data flow. With an eye to solving such global-scale issues as climate change and ocean plastics, I will deliver a strong message as representative of the G20 chair nation.
Q: Japan and the United States will start trade negotiations soon. Heated negotiations are anticipated in regard to motor vehicles as well as agricultural, forestry, and fishery products.
Abe: As indicated in the Japan-U.S. joint statement released last September when we decided to start negotiations, Japan has an agreement with the United States that outcomes as reflected in Japan’s previous economic partnership agreements constitute the maximum level with regard to agricultural, forestry, and fishery products. Moreover, it was agreed that tariffs under Section 232 of the U.S. Trade Expansion Act will not be invoked while the negotiations are in progress. I confirmed this directly with President Trump in clear terms at our summit meeting. Negotiations are a clashing of the national interests of each country, and the heart of diplomacy is each nation’s being able to say various things to the other through that process. In any case, Japan and the United States have agreed to the joint statement, and it is our shared basis for the upcoming negotiations. I intend to engage in negotiations based on this joint statement and to fully secure Japan’s national interests.
Q: The negotiations to conclude a peace treaty with Russia are a point of interest in the area of foreign affairs. What is the key to moving these talks forward?
Abe: The two nations first need to appreciate the significance of these talks as negotiations on an issue that has remain unresolved for the 70 years since the end of World War II. At the same time, it is also important to recognize that creating a peace treaty between Japan and Russia will contribute to the peace and stability of the region and lead to economic development as well.
If the solution is not one that both Japan and Russia can accept, however, it will not result in the resolution of the territorial issue and the formation of a peace treaty. Together with President Vladimir Putin, I want to find a solution that is acceptable to both countries. As agreed with President Putin, I aim to promote negotiations as much as possible based on the Japanese-Soviet Joint Declaration of 1956.
Q: What approach will you take with North Korea and China?
Abe: The resolution of the issue of abduction of Japanese nationals is my mission. I will not miss any opportunity in handling this. Now it is my turn to deal with Chairman Kim Jong Un. Nothing is decided concerning a Japan-DPRK summit, but we are communicating though various channels including the Japanese Embassy in Beijing, though we cannot disclose the specifics. North Korea has diligent workers and is also rich in natural resources. The country can become richer if it takes the right path. I expect Chairman Kim to choose the right course for the sake of the people there.
My visit to China in October was the first by a Japanese prime minister in about seven years. As a result, the Japan-China relationship has been fully put back to a normal path. I confirmed with President Xi Jinping three principles that will guide our future bilateral ties. This year we are going to put them into gear. We hope to invite President Xi to Japan and chart a new Japan-China era through reciprocal visits by the leaders of the two countries. The stable relationship between Japan and China can help bring peace and stability to the region. I think Japan and China have already built a common platform, based on which we can fulfill this role together.
Expectation for a broader, bipartisan consensus
Q: Discussions on constitutional revision have remained dormant.
Abe: The people shall make the final decision on whether or not to revise the Constitution via a national referendum, because they are sovereign in this nation. That is why political parties should present their views to the Diet to deepen public debate and understanding. Diet members are responsible for fulfilling this role as we are elected to office with a public mandate. I expect that the ruling and opposition camps will put aside their political differences and reach as broad a consensus as possible.
Q: You’ve designated this year as the beginning of creating a “social welfare system that caters to all generations.” After promoting reform in the employment system and other fields, how will you pursue the reform of welfare programs of high public interest, such as healthcare and pensions?
Abe: As I mentioned earlier, we must change our social welfare system to one that can make all generations, including children, child-rearing households, working people and senior citizens, feel secure. This year marks the beginning of this initiative. As the first step, we will provide free education for preschool children as well as children who truly need aid to pursue studies in higher education. Concurrently, we will pursue employment system reform to allow people to work beyond age 65 if they wish to do so in preparation for the era of people living to one hundred.
Then we will move to consider the reform of the entire social welfare system, including healthcare and pensions, on the assumption of lifetime employment. To be specific, we will consider the enhancement of incentives for policy holders who are willing to take preventive steps to promote fitness for a longer life and the expansion of a program that allows people to choose their pension eligibility age. The Japanese economy will benefit if many senior citizens can continue to work using their experiences. While pursuing these reforms, we will also consider the balance between welfare benefits and costs.
Q: You will soon become the longest-serving prime minister, but the challenge of maintaining unity may become an issue.
Abe: Sitting in the prime minister’s chair alone does not create unity. Unity is built when the leader lays out a policy agenda and demonstrates a strong commitment to its implementation. While drawing my own experience and networks that I’ve built in the international community, I will produce results both at home and aboard and respond to the mandate of the public.
Q: It is rumored that the Lower House may be dissolved for a snap election along with the Upper House election. What will you appeal to the public in the Upper House race?
Abe: The Upper House election is like a midterm grade report for the government. It is critical we win the race in order to carry out policies. In the upcoming race, I want to present a fresh plan for building Japan. I’ve been saying for some time that I aim to settle all diplomatic issues related to the war. This diplomatic stance will be put to the test in this election. The election will also determine whether we can continue to vigorously carry out Abenomics.