Future of Japan's Shinzo Abe at risk as scandal deepens

Key Points
  • Japanese Prime Minister Shinzo Abe's political future is at risk amid fresh developments over his alleged role in a scandal.
  • If the government's approval ratings fall further, Abe may either not run or face defeat in the upcoming party leadership election, one economist said.

Until now, Japanese Prime Minister Shinzo Abe was widely expected to become the country's longest-serving premier. Recent reports tying him to suspected cronyism could change that.

Protesters stage an anti-Abe demonstration near the prime minister's official residence in Tokyo on March 12, 2018.

For over a year, allegations have been flying that Abe and his wife Akie Abe granted political favors to a right-wing education group for a real-estate deal. Kyodo News reported on Monday that the first lady's name was removed from paperwork related to the sale, with finance ministry officials admitting admitting the same day that documents had been altered. Protesters in Tokyo took to the streets after that admission.

A number of controversies have dogged Abe during his two terms, but the 63 year-old has always retained a firm grip on power. Monday's news, however, could hit his approval ratings just as his ruling faction, the Liberal Democratic Party, prepares for a key leadership vote in September.

The LDP, Japan's main political entity, holds a hefty majority in parliament, so whoever wins the party's leadership vote is typically assured the role of prime minister. If Abe clinches victory in September's vote, that will put him on track for a third term in power — a record for the country.

But the current scandal could "erode Abe's support within the LDP, forcing him to announce that he won't seek a third term and clearing the way for a successor," according to Tobias Harris, Japan vice president at political risk advisory firm Teneo Intelligence.

News of proposed Trump-Kim meeting 'blindsided' Japan
News of proposed Trump-Kim meeting 'blindsided' Japan

Up until now, "there was little appetite within the LDP to change leaders," but with "evidence of serious wrongdoing" on the part of the finance ministry, "questions about who ordered the cover-up, how politicians were involved and what Abe knew will only grow," Harris explained.

Support for Abe's cabinet dropped two points to 44 percent, according to a telephone survey conducted by broadcaster NHK over the weekend. A separate poll by newspaper Yomiuri Shimbun showed the cabinet's rating falling six percentage points to 48 percent. It was the first time that metric had fallen below 50 percent since October.

At the heart of the controversy are reports that Moritomo Gakuen, a private educational institute with an ultra-nationalist reputation, used its connections with Abe's wife to obtain a cheap price for state land. Moritomo planned to use the land for a new school, naming Akie honorary principal. She quickly resigned from the position, however, when news of the deal broke last year.

If the government's approval ratings fall further, Abe "may either not run or face defeat in the upcoming LDP leadership election," echoed Marcel Thieliant, senior Japan economist at Capital Economics.

That could spell trouble for the prime minister's "Abenomics" reform program that has helped revived the world's third-largest economy.

Japan companies 'confused' on US moves on steel tariffs
Japan companies 'confused' on US moves on steel tariffs

If Abe exits in an orderly fashion at the end of his term, he can lend his support to a successor committed to Abenomics, according to Harris. "But if Abe is forced out prematurely, he'll have less control over the process."

There is at least one factor, however, that could boost Abe's chances at the September vote.

"There are no real challengers to him within the LDP so there's still a high probability that he will get re-elected," said Jesper Koll, CEO of equity fund WisdomTree Japan.

Former Foreign Minister Fumio Kishida has been touted as a potential successor to Abe, but "we haven't seen him do any aggressive fundraising toward that," Koll said. "The next three to four weeks is the perfect time to challenge Abe, but will the knives come out? I don't think so because nobody has put together a coherent strategy to take him on."

Kotaro Tamura, Asia fellow at the Milken Institute, echoed that Abe is likely to survive the resurgence of the scandal. In fact, he said, the credibility of the finance minister is more at risk than the prime minister's.