Abenomics needs cheap nuclear power to work

Everybody knows that Japan has an energy crisis. We also know that the yen has greatly depreciated, by some 20 percent in just a few weeks. It’s time to put these two facts together.

“Abenomics,” the shorthand for the aggressive economic strategies being pursued by Prime Minister Shinzo Abe, is the hot thing in Asia. What wonders will the weak yen work for Japan’s export machine? Is a recovery just around the corner? Despite its volatility, Japan’s stock market says so, and foreign investors, in particular, like the prospects.

Yet what makes exports more competitive also makes imports more expensive. After the March 11, 2011, Fukushima disaster, Japan turned off its nuclear-power plants and stepped up imports of energy. Looking just at the four biggest categories (oil, liquefied natural gas, coal and liquefied propane gas), the monthly value of Japan’s energy imports jumped from 1.4 trillion yen (before March 2010) to 2.2 trillion in March 2013. In March, that was about $17 billion; now add 20 percent in exchange-rate shifts to get $22 billion per month. Energy imports constitute about one-third of total imports, and since Fukushima, imports have grown to account for 17 percent of gross domestic product, up from 12 percent.

No wonder Japan is running a trade deficit. Yet the export machine can’t fix the economy if energy imports keep rising.

If all of Japan’s nuclear-power plants were running at full capacity, they would provide about 30 percent of electricity, and 11 percent of total energy consumption. With the current shutdowns, nuclear contributes only 2 percent of electricity, with oil and gas filling the gap.

Setting aside the question of greenhouse gases and global warming, the economic question is: Who will pay for the growing costs of energy imports? Industry, which consumes about 36 percent of energy, is supposed to lead the recovery, and some of Japan’s export leaders are energy guzzlers. If energy costs rise, the companies that produce the bulk of Japan’s world-class products will either lose out or ― to prevent this from happening ― move production elsewhere. Either outcome would surely halt Japan’s domestic recovery.

The second-biggest energy users, at roughly a third, are office buildings and city infrastructure. These, too, should be kicking into high gear, and would be hit by increased costs for air-conditioning or transportation. The final 30 percent of usage ― household consumption ― could perhaps be reduced or take higher charges. But people are already cheating on their 28-degree thermostat settings while complaining about rising energy costs. And the country can’t afford to subsidize this bill, since government debt is already more than 200 percent of GDP.

The economic reality of the 2011 disaster is that the strong yen saved the country. The yen is too weak for Japan to continue current levels of energy imports. Japan needs cheap energy, now. And it’s sitting there, in 50 reactors up and down the country.

The voices you hear from Japan in support of restarting these nuclear-power plants are not cold-blooded. Nobody wants to relive the horrors of March 12 and March 14, 2011, when the Daiichi reactors exploded. It is inconceivable that Japan will ever design a new nuclear-power plant, and highly unlikely that the two under construction will ever be fully operational. No, the pro-voices are economic-rational: Until Japan has alternative domestic-energy sources tied into its grid, there is no choice. Without nuclear energy, Abenomics will fail.

The politics behind this are surprising. At the national level, the plans of Abe’s Liberal Democratic Party, which has a strong pro-nuclear image, are no secret. The government recently announced that after new regulation takes effect in July, several power plants could go back online ― presumably in time for August’s summer heat wave. Even so, Abe’s popularity is intact. According to a leading energy think tank in Tokyo, 52 percent of Japanese were in favor of nuclear energy before Fukushima, and 39 percent were still in favor immediately after the disaster. This may have nudged back up, judging from the dwindling participation at the weekly “Sayonara Nuclear” demonstrations.

The real challenge is the local governments, which have veto rights. Surprisingly, a recent poll among 135 cities located in nuclear evacuation zones showed that 49 percent of mayors would agree to a restart. The official (what Japanese call “tatemae”) argument is: Nobody likes to live near such a plant, but there they are, as toxic as ever (though certainly less volatile than when switched on), and we don’t know much about disposing of unused nuclear-power plants. So, we might as well turn them back on. The real (“honne”) story is that the plant owner/operators ― the ten local monopolists that run Japan’s energy system ― pay their annual “dues” to the localities, not just in the form of jobs but straight money to communities and incumbent local governments.

The final piece to the puzzle, then, is how local governments and mayors who were vociferously against nuclear just last year can switch sides without losing votes. Consider the usually clever mayor of Osaka, Toru Hashimoto, now known globally as “the man who prescribes prostitutes for soldiers.” Osaka is much more nuclear-dependent than any other large city; it is close to the biggest agglomeration of nuclear-power plants in Fukui prefecture and surroundings, all operated by Kansai Electric Power Co. with headquarters in Osaka. Co-leader of the conservative Japan Restoration Party, Hashimoto also served briefly in 2012 as the anti-nuclear movement leader.

Osaka happens to get really hot in August, and needs cheap electricity. Whatever Hashimoto’s intentions with his bizarre tweets about Japan’s wartime behavior, they certainly have distracted voters from the tough choice he faces on energy. Indeed, the self-inflicted damage to his reputation now gives him the political space to go quietly along with the ruling party.

Not one part of this story is palatable, whether it is Japan’s glaring dependence on nuclear energy, the slow progress of the search for alternatives, or the inefficiencies of its grid. Yet whatever the future resolution of those problems, Japan has only one viable course of action: It cannot afford not to turn its nuclear-power plants back on. 

By Ulrike Schaede

Ulrike Schaede is a professor of Japanese business at the University of California, San Diego, and the author of “Choose and Focus: Japanese Business Strategies for the 21st Century.” The opinions expressed are her own. ― Ed.

(Bloomberg)