Wednesday, 8 June 2016

Sitrep - 8 June, 2016

Japan’s government is once again at a standstill after failing to agree on a consumption tax increase last week. The choice might be a detail, but indecision has been a hallmark of the East Asian power for decades. Prime Minister Shinzo Abe’s so-called “Abenomics” measures, once hoped to spur Japan back to life, seem now to have run their course.

The country’s debt to GDP is abnormally high at 245%, a factor clearly worrying its leaders. May’s industrial production statistics were low once again as well, further adding pressure. Tokyo’s goal of achieving surplus by 2020 is unlikely. This comes at a time when Japan’s neighbours – and the US – hope the nation will use its weight to counter China’s growing influence across East Asia.

Yet without a stable economy and the funds to feed its invigorated military, Japan will struggle to fulfil this responsibility. An extended political impasse may also delay the ratification of the Trans Pacific Partnership (TPP) until later this year, after the July 10 Diet elections. Should Mr Abe gain extra support during those elections, he may try to push the deal through, but probably not before July.

Denials from the Russian Defence Ministry about recent movements of Russian troops near the Belarussian border direct interest back to the frozen Ukraine conflict. The denial was vague enough to suggest a troop build-up somewhere, perhaps not near Belarus, but Moscow’s message is clear.

Russia is deep inside tough negotiations with the US and EU over the status of Ukraine. In positioning thousands of troops in its west, Russia will project an image of dangerous consequences if negotiations fall apart. Russia also dramatically increased its airstrikes in Syria last week, which helps the US strategy for that country. So Russia’s strategy is serving a dual purpose.

Germany is showing signs of wanting to ease EU sanctions on Russia to retain the coherency of the bloc, rather than let a new Cold War emerge which it fears might cripple the EU. It also wants access to Russian consumers to offset the anaemic growth in the EU. However, the US would prefer to keep pressure on Russia and force more concessions. Russia is noticing a gap between the two negotiating partners and hopes its tactics will drive a useful wedge deeper between them.

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