Japan Virus Woes Pose Existential Threat to Abe Government

(Bloomberg) -- Shinzo Abe has overcome countless political perils on the road to becoming Japan’s longest-serving prime minister. He may have met his match with the coronavirus.

In a sign of mounting concern, Abe abandoned his relatively mild approach to the epidemic last week with a shock announcement urging schools to shut nationwide from Monday. The move sent millions of parents rushing to arrange childcare and raised doubts about the government’s grasp on a situation threatening to tank the economy, scuttle Tokyo’s plan to host the Summer Olympics in four months and tarnish Abe’s legacy.

“This step signals both the government’s alarm at the outbreak’s trajectory and –- perhaps more importantly –- Abe’s awareness that mismanaging the outbreak could critically damage his premiership,” said Tobias Harris, a Japan analyst for Teneo Intelligence in Washington. “However, it seems unlikely that this step will either contain the outbreak or restore the public’s confidence in Abe’s leadership.”

The reversal followed weeks of controversy over Abe’s efforts to contain a disease that has infected more than 200 people in Japan and hundreds of others in an attempt to quarantine a cruise ship offshore. Abe’s health minister acknowledged last week that Japan was conducting only a fraction of the number of tests as its peers, meaning the cases confirmed so far may only be the tip of the iceberg.

The episode has damaged Japan’s reputation for competent governance, even as people began to wonder whether it might be safer to postpone the Olympics for the first time since World War Two. Tokyo has already spent more than $26 billion to prepare for the event, which Abe has made a centerpiece of his campaign to attract foreign tourists.

On Monday, Abe said he would work on legislation to allow the government to declare a state of emergency. The northern Japanese prefecture of Hokkaido, which includes some of Asia’s premier skiing destinations, on Friday announced a state of emergency until March 19, urging people to say at home.

The blow has fallen on a Liberal Democratic Party-led government already weakened by a series of corruption scandals and a sales tax hike in October that left the economy teetering on the brink of a recession. Support for Abe’s cabinet sagged last week to its lowest average level since July 2018, according to data compiled by Bloomberg Economics. One poll published by the LDP-backing Sankei newspaper showed support falling 8 percentage points to 36%.

Abe defended his response to the outbreak at a news conference Saturday, arguing that Japan was experiencing a less severe situation than places such as neighboring South Korea. He took personal responsibility for the dramatic decision Thursday to urge schools to close with just three days’ warning. He’s set to speak again in parliament on Monday.

“A decision that affects people’s daily lives will of course result in various opinions and criticisms,” Abe told reporters. “As prime minister, it is a matter of course for me to listen to those voices. But at the same time I need to protect the lives of the people.”

Japan’s benchmark Topix gauge marked its worst weekly decline in four years last week and continued to fall until Bank of Japan Governor Haruhiko Kuroda issued an emergency statement Monday promising ample liquidity, which helped lift shares for the first time in six trading days. Market jitters bode ill for an economy that contracted 6.3% in the last three months of 2019. Unemployment rose to 2.4% in January, compared with 2.2% in December.

The outbreak is only becoming harder to control as it spreads from its source in China around the world, with the U.S., Australia and Thailand reporting their first deaths due to the disease over the weekend. The virus has infected nearly 90,000 people and killed more than 3,000 worldwide, including several in Japan and at least six former passengers and crew on the Diamond Princess cruise ship.

While Abe benefits from a divided opposition that recently failed to merge its two biggest parties, a simultaneous collapse of the economy and the Olympic project might be too much for the LDP to ignore. Further declines could prompt the ruling party to ditch Abe ahead of the next general elections, which must be held by October next year.

Kazuhiro Haraguchi, a lawmaker with the opposition Democratic Party for the People and former minister for internal affairs, criticized the government for not triggering an action plan laid out for influenza control under the previous administration.

“At first they said it wasn’t a big deal,” Haraguchi said in an interview ahead of the announcement on school closures. “The next thing they will probably do is say it’s too late to tackle it.”

Abe -- like leaders in South Korea, Hong Kong and elsewhere -- has faced criticism for the government’s reluctance to institute a total ban on Chinese arrivals, instead of curbing visitors from only its hardest-hit provinces. The Sankei poll found two-thirds of respondents wanted all visitors from mainland China banned temporarily.

That’s complicated Abe’s push to restore ties with China that were mired in one of their biggest crises ever when he took power in late 2012. Both Tokyo and Beijing still say they plan to go ahead with a state visit by President Xi Jinping in April, though the Sankei newspaper reported it could be delayed to autumn or later.

Although Abe has survived worse slumps before, the coronavirus outbreak is shaping up to be his toughest challenge yet. Waiting in the wings is Shigeru Ishiba, a former LDP defense minister whose efforts to distance himself from the government have helped make him the most popular candidate to succeed Abe.

“There are major cracks appearing in his bedrock support,” said Shigeharu Aoyama, an upper house LDP lawmaker, who said Abe’s policies had shown consideration for China, while placing burdens on the Japanese people. “Doubts are emerging over the nature of the administration and whether it’s appropriate for the nation.”

(Updates with latest market movements)

--With assistance from Gearoid Reidy, Jeremy Diamond, Yuki Masujima (Economist), Muneeza Naqvi and Ruth Pollard.

To contact the reporter on this story: Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net

To contact the editors responsible for this story: Brendan Scott at bscott66@bloomberg.net, Jon Herskovitz

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