Japan's polarizing PM Abe learns the long game

Japanese Prime Minister Shinzo Abe
Getty Images

Shinzo Abe is one of Japan's most polarizing prime ministers in decades. He may also have a good shot at becoming that rarity in Japanese politics – a long-serving leader.

Whether that proves to be the case depends on whether Abe, who surged back to power 20 months ago for a second shot at Japan's top job, can temper his conservative ideology with pragmatism and keep his pledges to end two decades of economic stagnation.

Abe's first term ended when, suffering ill health and facing political deadlock, he quit in 2007 after one troubled year. His focus then was on a controversial agenda that included turning the page on Japan's wartime past and easing the limits of the pacifist constitution. That agenda failed to resonate with voters worried about jobs and pensions.

Read MoreJapan shows sharp contraction in second quarter

This time, aides are seeking to soften Abe's image as an ideologue and convince foreign investors and domestic voters his top priority remains reviving the economy. Abe's inner circle is well aware that success hinges on keeping that balance, interviews with dozens of aides, advisers and allies show.

"Mr Abe himself understands well what he must do as prime minister - and that is not simply to forge ahead with his own agenda," said a senior ruling coalition lawmaker.

Abe's support rates have rebounded to just over 50 percent after slipping below that level last month, after the cabinet eased some of the pacifist constitution's limits on the military. Any fresh declines could erode his ability to tackle tough reforms many say are needed to engineer growth for Japan's aging and shrinking population. Abe faces several hurdles in the coming months.

Read MoreWhy investors are overlooking Japan's growth collapse

He is expected to reshuffle the cabinet in early September, although core members of his team – including Chief Cabinet Secretary Yoshihide Suga, a veteran of his first term – are set to stay on. He must also decide whether to go ahead with raising the sales tax to 10 percent next year, and faces a string of local elections. Navigating those political shoals with his popularity intact will be key to victory in a ruling Liberal Democratic Party (LDP) leadership race a year from now, which Abe needs to win to gain a second three-year term until 2018.

No one who knows Abe thinks he has abandoned his conservative agenda. But he and his aides stress his top focus is the economy, which has been jolted by last April's sales tax hike to 8 percent. Last quarter, the economy suffered its biggest contraction since the March 2011 earthquake and tsunami.

"It is the economy that is the well-spring of energy for society," Abe wrote in an article published in the monthly Bungei Shunju magazine. But he added: "Security and the economy are not matters of a different order, and in reality, it could be said that they are … two sides of the same coin."

Read MoreJapan machinery orders rise 8.8% on month in June

Less is more

Abe has sought to temper his image as a security hawk whom critics accuse of gutting Japan's pacifist constitution, as he pushes to ease the limits imposed on the military by the U.S.-drafted charter's war-renouncing Article 9.

On July 1, his cabinet adopted a resolution reinterpreting the constitution to drop a ban on collective self-defense, or aiding a friendly country under attack. The decision to drop the ban, which has kept the military from fighting abroad since 1945, marked a historic change in Japan's security policy.

It also fulfilled a cherished goal for Abe, who inherited much of his conservative agenda from his grandfather, Nobusuke Kishi, a prewar cabinet minister who was jailed but never tried as a war-crimes suspect. Kishi became premier in 1957, but had to resign three years later after ramming a U.S.-Japan Security Treaty through parliament despite mass public protests.

Read MoreHow Japan is courting Muslim tourists

In a classical Chinese-style poem written by hand with ink and brush and presented to Abe privately, Hisahiko Okazaki, a former diplomat and long-time Abe confidant summed up what the policy shift meant for those who shared Abe's world view.

"Unprecedented defeat destroyed our spirit. To whom should we entrust the security of the people? Three generations of patriots. Finally, collective self-defense. Justice," he wrote.

Although Abe was determined to achieve the goal that eluded him in 2006-2007, he also demonstrated early on a willingness to compromise on the security issue to get a deal with the LDP's junior coalition partner, the more dovish New Komeito.

Read MoreThe future looks tasty for Domino's in Japan

Insiders said the stage for compromise was set months before the deal was clinched, when LDP Vice President Masahiko Komura floated the idea of allowing a "limited" exercise of collective self-defense.

"Basically, the prime minister wanted to do everything, but once Mr Komura came up with the concept of 'limited' (change), we realized that this was pretty close to the New Komeito's thinking and in that context the prime minister made the final decision," said a government official close to Abe.

After receiving proposals from his security advisers, Abe at a May 15 news conference ruled out sending Japanese troops to fight with like-minded nations in far-flung military operations such as the 2003 U.S-led invasion of Iraq. "He narrowed the scope, saying there would not be a 'full model change'," the coalition lawmaker said.

Abe's third arrow failed to convince investors: Pro
Abe's third arrow failed to convince investors: Pro

Washington welcomed the move, which U.S. officials have long urged as necessary to allow Japan to take on more of the burden for the security alliance.

Abe's liberal detractors, though, say the reinterpretation paves the way for further weakening of the constitution's pacifist Article 9 without attempting a politically tougher task of amending the constitution in parliament. The charter has not been amended since its adoption, although successive governments have stretched its limits.

"If I were Abe's advisers, I'd reassure the international audience, especially American policy-makers, that he is a pragmatist pursuing a reformist agenda," said Sophia University professor Koichi Nakano. "He is doing this quietly, in a way that is not jarring to international observers."

Read MoreJapan June current account swings to deficit

History lessons

Nowhere has the tug-of-war between Abe's conservative ideology and pragmatism been clearer than in the handling of the legacy of Japan's wartime past.

Abe's Dec. 26 visit to Tokyo's Yasukuni Shrine, where Japanese leaders convicted by an Allied tribunal as war criminals are honored along with war dead, stunned the United States and outraged China and South Korea, where memories of Japan's wartime aggression run deep.

It was a rare defeat for the pragmatists in the Abe camp, such as Chief Cabinet Secretary Suga and his executive secretary Takaya Imai, a career trade and industry bureaucrat who by some accounts had vowed to physically prevent Abe from going.

Read MoreWhat happened to Japan's yen-driven export boom?

"For him, it is like visiting his parents' tomb. He felt he hadn't visited his parents' tomb for a long time, so he went," said Okazaki, the former diplomat. "It's a question of faith."

Since the last visit, Abe has confined himself to making ritual offerings without visiting the shrine in person.

"I think he will make a political decision whether to go every year or whether, having expressed his beliefs (by going once), he should exercise self-restraint with a pragmatic line for a while," said Koichi Hagiuda, a special aide to Abe in his Liberal Democratic Party (LDP).

Read MoreBank of Japan keeps policy steady, warns on exports

Abe who has visited 47 countries since taking office, usually with business executives in tow, has been unable to hold summits with Chinese and South Korean leaders partly because of the shrine issue. He has recently renewed his calls for a summit with Chinese President Xi Jinping.

Abe also invokes Japan's ancient traditions as a rationale for his economic policies – using a fuzzy concept known as "Mizuho no Kuni Capitalism".

The phrase, which translates as "Capitalism in a Land of Abundant Rice", harks back to Japan's traditional rice farming culture. It seeks to differentiate that cooperative approach from what is viewed as Western profit-grabbing greed.

Read More

Those closely involved in formulating his economic policies, however, say those ideas play little direct role in crafting Abe's pro-business growth measures.

"Achieving growth through competitiveness policies, deregulation, competition - these are things which must be done and they are just common sense," said economist Heizo Takenaka, a member of a government economic advisory panel.

With local elections looming later this year and next, some advisers worry that political operatives may be tempted to opt for old-style tactics such as wooing rural voters with pork-barrel projects and shy away from tackling reforms that could hurt LDP support groups such as farmers.

Read MoreChoinomics - Breakthrough for South Korea?

Pressure from LDP lawmakers persuaded Abe's economic team to include a reference to "Local Abenomics" in a policy package unveiled in June to persuade those outside Tokyo that they were not being ignored by a growth strategy that had mostly benefited big companies and cities.

"What is important is not to go for 'safe driving' but to go on the attack," Takenaka said. "That is easy to say, but requires courage from those in charge."