PM Abe Steps Down: Analysis

Japanese PM Abe is stepping down. For those who don't follow Japanese politics, this is a huge, market moving deal. My analysis...

Abe was Japan's longest serving Prime Minister and was set to step down next year. While Japan does hold elections, Abe's conservative party, the Jiminto (also known as the Liberal Democratic Party, or LDP), has dominated the political landscape in Japan since 1955. A successor to Abe was likely being groomed. (Taro Kono, maybe?) There is no controversy here. Abe had ulcerative colitis and had been seeing a doctor for outpatient treatments. The medication apparently was making him tired, and he is stepping down a year early.

But this leaves a power vacuum...and questions about Japan's economy.

There is now a leadership race on. Deputy PM Taro Aso will likely take over as acting PM, but he is not a good long-term candidate for the role. Taro Kono, the current Defense Minister, is better a better successor.

Under Abe, Jiminto leaned farther right. Japan's Self Defense Forces (its military) was strengthened, and a show of national strength was fostered. This was a net positive. It bolstered Japan's position geopolitically.

Abe's biggest impact was economic. In 2012 he announced Abenomics, a three-pronged plan supporting fiscal expansion, monetary easing, and structural reform. It's been a big success. Under Abenomics, the immediate goal was to boost domestic demand and GPD and raise inflation marginally. It worked. Unemployment fell to the lowest rates in decades, the ratio of public debt plummeted.

So the question now is what happens under a new leader.

To give you a sense of how important Abe -- and Abenomics -- has been to Japan, the longest serving prime Minister before Abe was Junichiro Koizumi. I lived in Japan while Koizumi was PM. He served 2001 - 2006. Every PM between Koizumi and Abe served only 1-2 years. (In fact, Abe served as PM for one year after Koizumi.)

For a very long time, Japan was a leading middle power, and more recently expected to serve as a proxy for the US as tensions between the US and China flared. Abe worked to break that pattern and give Japan a more significant, independent geopolitical role.

Abe’s resignation also coincides with the US presidential election and key strategic foreign policy decisions that need to be made this fall. Jiminto will need to work on coalition building asap to carry Abe's momentum forward.

One positive to Abe's resignation: a new PM could lead better in tech.

Japan should be a global leader in AI, robotics and biotech. The Abe gov't never invested enough, didn't create national plan, and did far too little to support the development of strategic technologies.

Failing to keep pace with China in the development of critical infrastructure -- AI, advanced telecommunications, biotech, robotics -- was a failing of Abe and his government.

My hope is that Japan's next PM creates an Abenomics-style plan for tech. Without a strong plan for advanced technology Japan will find itself strategically vulnerable. Investing in AI, biotech, robotics could further cement Japan as a formidable global leader.