One thing, however, was intact: his commitment to a controversial conservative agenda centered on rewriting Japan’s constitution. Conservatives see the 1947 pacifist charter, never once altered, as embodying a liberal social order imposed by the U.S. Occupation after Japan’s defeat in World War Two.

“What worries me most now is that because of my resigning, the conservative ideals that the Abe administration raised will fade,” Abe wrote in the magazine Bungei Shunju after abruptly quitting in September 2007. “From now on, I want to sacrifice myself as one lawmaker to make true conservatism take root in Japan.”

Less than six years after his humiliating departure, Abe, 58, is back in office for a rare second term. He is riding a wave of popularity spurred mainly by voters’ hopes that his prescription for fixing the economy will end two decades of stagnation. The policy, known as “Abenomics”, is a mix of monetary easing, stimulative spending and growth-inducing steps including deregulation in sectors such as energy.

But interviews with some two dozen allies and insiders show “Abenomics” was a late addition to his platform.

Abe’s unlikely comeback was engineered by a corps of politicians who called themselves the “True Conservatives,” many of whom share his commitment to loosening constitutional constraints on the military and restoring traditional values such as group harmony and pride in Japanese culture and history.

While the cultural-political agenda is what drove them, Abe and his backers also came to realize that voters cared most about the economy, so this time, they made it the top priority.

“Mr. Abe in his first term put more priority on revising the constitution than on the economy,” said Yoichi Takahashi, a former finance ministry official who is an adviser to Abe. “Even now, I think that is the case. But I think he realized that in terms of order of priority, he had to work on the economy first.”

Ahead of a July upper house election that his Liberal Democratic Party (LDP) looks set to win, Abe is again floating the conservative political agenda, including constitutional revision, that drew his core supporters even as he tries to steer a more pragmatic course.

Revising the constitution, though, ranks far down the list of public priorities, polls indicate, and voters are sharply divided over whether to alter the document’s signature passage, the war-renouncing Article 9, to legitimize the military.

Some Abe allies worry that a hasty push for constitutional changes could upset voters who want the focus to stay firmly on the economy – repeating a mistake seen as a key factor in Abe’s first failed attempt to govern.

“He wants to achieve what he left undone – to break free of the ‘post-war regime’,” said Koichi Hagiuda, a lawmaker and special aide to Abe. “What is most symbolic of that is the constitution that was drafted in one short week under (U.S. General Douglas) MacArthur’s Occupation.”

But Hagiuda added: “He has no intention to rush”.

Japan’s security ally, the United States, would likely welcome an easing of the constitution’s constraints on Japan’s military. But Washington worries that Abe’s efforts to strike a less apologetic tone on wartime history will further strain ties with China and South Korea, who suffered under Japan’s occupation and colonization before and during World War Two.

Abe has declined requests for interviews.

HOPE OF REBIRTH

Months after resigning in September 2007, Abe visited Kumano Shrine deep in the mountains of western Japan, known since ancient times as a place of healing and resurrection. Few thought then he would be politically reborn as one of the country’s most popular leaders.

“It is said that if you make a pilgrimage there, you will be restored to life,” said one government source close to Abe. “I said, ‘Let’s go there and you will surely come back.’”

“I urged him many times … to take some action aimed at becoming prime minister again. But he kept saying, ‘No, no. It’s too soon. The public will not forgive the way I resigned.’”

Yet Abe never abandoned hope of political redemption, his closest advisors from those times say.

“He definitely wanted to be prime minister again,” said Hidenao Nakagawa, who had served as the LDP’s No. 2 official during Abe’s first term. “And those around him encouraged him and told him ‘Your time will come.’”

Abe’s time had appeared to come when the scion of a wealthy political family took office in 2006 at the age of 52, Japan’s youngest post-war premier. Abe was dedicated to conservative ideals imbibed at the knee of his grandfather, former Prime Minister Nobusuke Kishi, and encapsulated in Abe’s 2006 book, “Toward a Beautiful Country.”

A wartime cabinet minister, Kishi was imprisoned but never tried as a war criminal after World War Two. He was premier from 1957 to 1960, but had to resign without achieving his goal of revising the pacifist constitution due to a public furor over a U.S.-Japan security pact that he rammed through parliament.

Just 12 months after taking over as heir to charismatic Prime Minister Junichiro Koizumi, however, Abe stunned the political world by quitting. His term was marred by scandals in his cabinet, a public outcry over lost pension records and a huge election loss that created a deadlock in parliament. He also suffered a severe worsening of his chronic ulcerative colitis, for which he was hospitalized after quitting.

“TRUE CONSERVATIVES”

Soon after his resignation, Abe and other LDP conservatives set up the True Conservatives Association. Its goals were to protect tradition and culture, revise the “post-war regime”, protect national interests and earn international respect.

Central to the group’s world view is a belief that the constitution, drafted by U.S. Occupation officials in February 1946, not only restricted Japan’s right to defend itself but also eroded traditional mores by emphasizing individualism and citizens’ rights over social harmony and duty to the state.

The association included close allies such as Yoshihide Suga, a former minister in Abe’s first cabinet. It formed the core of Abe’s support when many LDP powerbrokers thought his future was on the back bench.

“Politically savvy people did not think that he could come back as prime minister,” said Michael Green, Japan chair at the Washington-based Center for Strategic & International Studies, whose ties to Abe go back to his stint at the U.S. National Security Council from 2001 to 2005. “The people who pushed his comeback and remained fiercely loyal were not the most influential.”

A group of conservative business executives known as the Four Seasons Association provided moral support and advice. Members included Central Japan Railway Co’s Yoshiyuki Kasai and Fujifilm Holdings Corp’s Shigetaka Komori.

“Mr. Kasai and Mr. Komori thought they needed to nurture a future prime minister from among younger politicians,” said former economics minister Kaoru Yosano, who first introduced Kasai to Abe before he first became premier. “After he resigned, they disbanded, but contact and friendship remained on a personal basis. Mr. Kasai and the others were in full agreement that he should have a second chance.”

Kasai, 72, is an outspoken critic of China and during the first Abe cabinet served on an advisory panel on teaching of patriotism in Japanese schools. He declined to be interviewed. Komori, 73, is credited with saving Fujifilm from the fate of failed imaging rival Kodak.

Their backing stemmed from agreement with Abe’s conservative agenda rather than specific economic policies.

“The constitution puts individual rights too far out in front,” said Komori, who with Kasai later became core members of a more recent corporate-executive support group for Abe, the Cherry Blossom Association. “Mr. Abe is extremely sensitive to the merits of restoring that sort of Japanese spirit. I was in great agreement with that,” he told Reuters.

RETURN TO THE STAGE

Abe met periodically with a quartet of former cabinet- minister comrades – Suga, Yasuhisa Shiozaki and Yoshimi Watanabe – who called themselves the Abbey Road Group – a pun on Abe’s name and the iconic cover of the 1969 Beatles album.

Suga had been working towards Abe’s return from the time he quit. His reasons, say some who know him, were as much personal as ideological. “He was a bosom friend,” said one political source.

The campaign to bring back Abe gathered momentum in 2009 even as public support for the LDP slid under yet another unpopular prime minister, pushing the long-ruling party towards the opposition for the first time since it was briefly ousted in 1993-1994.

Abe began to emerge from the shadows, traveling to Washington in April 2009 to speak at the Brookings Institution, where he expressed concern about China’s military build-up and touted “innovation” as the cure for Japan’s economic ills.

His public appearances sparked speculation he was considering another bid for the premiership, a possibility he left open in an interview with Reuters in May of that year.

“I want to receive the judgment of the people in the election, obtain the voters’ trust and work towards my next goal,” he said then.

Indeed, Abe’s close allies say the August 2009 general election, which ousted the LDP after ruling Japan for most of the past half-century, marked a turning point.

Abe went to unusual lengths to ensure he not only kept his own seat in that poll – never really in doubt – but also resoundingly defeated his Democratic Party rival. He pounded the pavement, called on voters at their homes, shook hands at shopping alleys – rare activities for former prime ministers with safe seats.

“That was the time I felt that this man definitely intends to try (for the premiership) again,” said the government source close to Abe. “He wanted to win by a landslide. I think his intention was to settle the account with the past that way.”

Abe did win by a landslide, but the LDP was trounced by the novice Democratic Party of Japan. Now in the opposition, Abe took over leadership of the True Conservatives Association.

“After we lost power, we thought that if we did not create a true conservative core, our time in opposition would drag out,” said Seiichi Eto, a founding member of the group and now a special aide to the prime minister. “From that time, we carried out activities like a political party.”

PENSIONS AND POCKETBOOKS

While Abe and his allies remained committed to their conservative agenda, the failure of his first administration had taught them one scarring lesson: Voters care more about pensions and pocketbooks than changing the constitution and reviving patriotic education.

The program of drastic monetary easing that became central to “Abenomics” took root in Abe’s agenda after the triple disasters of March 11, 2001 – a mammoth earthquake, tsunami and nuclear crisis.

In June of that year, senior LDP member Kozo Yamamoto set up a group calling for a 20 trillion yen ($200 billion) reconstruction program to be funded by debt purchased by the Bank of Japan.

Yamamoto invited Abe to head the group. It later morphed into an association urging the central bank to set a 4 percent inflation target – considered an extreme notion to which the BOJ was staunchly opposed. Abe accepted the role, and through his association with the group and its mentors such as Yale University professor Koichi Hamada, became a convert.

Some of Abe’s closest allies, such as Shiozaki, an ex-central bank official in the Abbey Road group, at first opposed adopting what they considered extreme economic views. They particularly objected to a threat to gut the central bank’s independence by revising its legal charter if it refused to embark on radical monetary easing.

“What Mr. Yamamoto was saying was a heretical view,” one government source said. “The study group advocated revising the BOJ law, and we felt it would be laughed at by world leaders.”

By March 2012, however, it was clear Abe supported a bolder monetary policy. Business supporters pushed him to rein in the strong yen, which was battering exporters and pushing output offshore. A big bout of monetary easing might do just that.

Two months later, Abe impressed business executives at an exclusive gathering with his economic analysis. He whipped out color charts comparing the monetary base – cash in circulation plus deposits at the central bank – under the BOJ, the European Central Bank and the Federal Reserve.

He used the prop to put the blame for persistent deflation squarely on Japan’s central bank. “I was stunned that he started by talking about the monetary base and deflation,” said one source who attended the meeting.

ABE REDUX

In the spring of 2012, Abe’s allies prepared for a run at the LDP presidency. Much of the groundwork was laid by the True Conservatives Association, now renamed Sosei Japan (Japan Rebirth). Education reform and revising the constitution topped the list of policies, but the proto-platform also called for a 3 percent inflation target.

Speculation about an Abe comeback grew in April, when he met outspoken Osaka Mayor Toru Hashimoto, who hoped to woo Abe to the new right-leaning Japan Restoration Party he was planning to set up. Abe rejected the overture.

“He told me around last May that he would not join the Japan Restoration Party and wanted to seek a second chance from the LDP,” said Watanabe of the Abbey Road quartet, recalling a late night chat in a bar in Tokyo’s Roppongi nightspot.

His allies gave Abe conflicting advice over whether he should run in a September vote for leadership of the LDP. Some said it was too soon, others that he should grab the chance.

Ahead of Japan’s mid-August summer Obon holidays, when spirits of ancestors are honored, Suga and another close ally visited Abe in his office for another appeal. They told him his chances of victory over two front-runners were at least 50-50. Abe promised to consult his wife, Akie.

He declared his candidacy on September 12, 2012 – five years to the day after quitting – and won the leadership race in a rare second round run-off. Campaigning on pledges to revive Japan’s economy and diplomacy, Abe then led his party to a landslide December election win.

Back in office, the prime minister and his inner circle – many from his first attempt to govern – have applied lessons learned from that early failure, when the government message was more cacophony than harmony.

Allies credit Suga, 64, now in the key post of chief cabinet secretary, with running the tight government ship that eluded Abe the first time.

Unlike during his first term, cabinet ministers rarely speak out of turn. Abe is kept front and center in the media through interviews, news conferences and Facebook postings. Abe spends considerable effort wooing media executives but shuns the brief daily stand-up Q&A sessions with reporters that tripped him up the first time.

For all the change in style, those close to Abe say his ultimate goal remains unchanged.

“He intends to be in office for four or five years and in the end, he wants to revise Article 9 of the constitution,” said another government source. The pacifist clause, if taken literally, bans Japan from maintaining a military, but has been stretched to allow armed forces now bigger than Britain’s.

This time Abe is pushing first for procedural changes to the constitution’s Article 96 to lower the hurdle for revisions. Currently, Article 96 requires that amendments be approved by two-thirds of the members of each house of parliament, followed by a majority of voters in a public referendum. The LDP wants to change that to a simple majority in parliament, followed by the public vote.

Critics say such an amendment would leave the constitution vulnerable to easily shifting political winds.

One recent Sunday, the media-savvy Abe made what looked to some like a pitch for the revision at the ballpark. After giving two popular Japanese baseball greats – including former New York Yankees star Hideki Matsui – a national award, Abe got a present of his own – a jersey with the number 96. He donned the shirt and strode onto the field at Tokyo Dome stadium before 46,000 fans and live TV cameras.

Asked later if the number referred to the proposed change in the charter, Abe replied with a smile: “The uniform is because I am Japan’s 96th prime minister.”

(Additional reporting by Taiga Uranaka; Editing by Bill Tarrant)

One thing, however, was intact: his commitment to a
controversial conservative agenda centered on rewriting Japan’s
constitution. Conservatives see the 1947 pacifist charter,
never once altered, as embodying a liberal social order imposed
by the U.S. Occupation after Japan’s defeat in World War Two.

“What worries me most now is that because of my resigning,
the conservative ideals that the Abe administration raised will
fade,” Abe wrote in the magazine Bungei Shunju after abruptly
quitting in September 2007. “From now on, I want to sacrifice
myself as one lawmaker to make true conservatism take root in
Japan.”

Less than six years after his humiliating departure, Abe,
58, is back in office for a rare second term. He is riding a
wave of popularity spurred mainly by voters’ hopes that his
prescription for fixing the economy will end two decades of
stagnation. The policy, known as “Abenomics”, is a mix of
monetary easing, stimulative spending and growth-inducing steps
including deregulation in sectors such as energy.

But interviews with some two dozen allies and insiders show
“Abenomics” was a late addition to his platform.

Abe’s unlikely comeback was engineered by a corps of
politicians who called themselves the “True Conservatives,” many
of whom share his commitment to loosening constitutional
constraints on the military and restoring traditional values
such as group harmony and pride in Japanese culture and history.

While the cultural-political agenda is what drove them, Abe
and his backers also came to realize that voters cared most
about the economy, so this time, they made it the top priority.

“Mr. Abe in his first term put more priority on revising the
constitution than on the economy,” said Yoichi Takahashi, a
former finance ministry official who is an adviser to Abe. “Even
now, I think that is the case. But I think he realized that in
terms of order of priority, he had to work on the economy
first.”

Ahead of a July upper house election that his Liberal
Democratic Party (LDP) looks set to win, Abe is again floating
the conservative political agenda, including constitutional
revision, that drew his core supporters even as he tries to
steer a more pragmatic course.

Revising the constitution, though, ranks far down the list
of public priorities, polls indicate, and voters are sharply
divided over whether to alter the document’s signature passage,
the war-renouncing Article 9, to legitimize the military.

Some Abe allies worry that a hasty push for constitutional
changes could upset voters who want the focus to stay firmly on
the economy – repeating a mistake seen as a key factor in Abe’s
first failed attempt to govern.

“He wants to achieve what he left undone – to break free of
the ‘post-war regime’,” said Koichi Hagiuda, a lawmaker and
special aide to Abe. “What is most symbolic of that is the
constitution that was drafted in one short week under (U.S.
General Douglas) MacArthur’s Occupation.”

But Hagiuda added: “He has no intention to rush”.

Japan’s security ally, the United States, would likely
welcome an easing of the constitution’s constraints on Japan’s
military. But Washington worries that Abe’s efforts to strike a
less apologetic tone on wartime history will further strain ties
with China and South Korea, who suffered under Japan’s
occupation and colonization before and during World War Two.

Abe has declined requests for interviews.

HOPE OF REBIRTH

Months after resigning in September 2007, Abe visited Kumano
Shrine deep in the mountains of western Japan, known since
ancient times as a place of healing and resurrection. Few
thought then he would be politically reborn as one of the
country’s most popular leaders.

“It is said that if you make a pilgrimage there, you will be
restored to life,” said one government source close to Abe. “I
said, ‘Let’s go there and you will surely come back.’”

“I urged him many times … to take some action aimed at
becoming prime minister again. But he kept saying, ‘No, no. It’s
too soon. The public will not forgive the way I resigned.’”

Yet Abe never abandoned hope of political redemption, his
closest advisors from those times say.

“He definitely wanted to be prime minister again,” said
Hidenao Nakagawa, who had served as the LDP’s No. 2 official
during Abe’s first term. “And those around him encouraged him
and told him ‘Your time will come.’”

Abe’s time had appeared to come when the scion of a wealthy
political family took office in 2006 at the age of 52, Japan’s
youngest post-war premier. Abe was dedicated to conservative
ideals imbibed at the knee of his grandfather, former Prime
Minister Nobusuke Kishi, and encapsulated in Abe’s 2006 book,
“Toward a Beautiful Country.”

A wartime cabinet minister, Kishi was imprisoned but never
tried as a war criminal after World War Two. He was premier from
1957 to 1960, but had to resign without achieving his goal of
revising the pacifist constitution due to a public furor over a
U.S.-Japan security pact that he rammed through parliament.

Just 12 months after taking over as heir to charismatic
Prime Minister Junichiro Koizumi, however, Abe stunned the
political world by quitting. His term was marred by scandals in
his cabinet, a public outcry over lost pension records and a
huge election loss that created a deadlock in parliament. He
also suffered a severe worsening of his chronic ulcerative
colitis, for which he was hospitalized after quitting.

“TRUE CONSERVATIVES”

Soon after his resignation, Abe and other LDP conservatives
set up the True Conservatives Association. Its goals were to
protect tradition and culture, revise the “post-war regime”,
protect national interests and earn international respect.

Central to the group’s world view is a belief that the
constitution, drafted by U.S. Occupation officials in February
1946, not only restricted Japan’s right to defend itself but
also eroded traditional mores by emphasizing individualism and
citizens’ rights over social harmony and duty to the state.

The association included close allies such as Yoshihide
Suga, a former minister in Abe’s first cabinet. It formed the
core of Abe’s support when many LDP powerbrokers thought his
future was on the back bench.

“Politically savvy people did not think that he could come
back as prime minister,” said Michael Green, Japan chair at the
Washington-based Center for Strategic & International Studies,
whose ties to Abe go back to his stint at the U.S. National
Security Council from 2001 to 2005. “The people who pushed his
comeback and remained fiercely loyal were not the most
influential.”

A group of conservative business executives known as the
Four Seasons Association provided moral support and advice.
Members included Central Japan Railway Co’s Yoshiyuki Kasai and
Fujifilm Holdings Corp’s Shigetaka Komori.

“Mr. Kasai and Mr. Komori thought they needed to nurture a
future prime minister from among younger politicians,” said
former economics minister Kaoru Yosano, who first introduced
Kasai to Abe before he first became premier. “After he resigned,
they disbanded, but contact and friendship remained on a
personal basis. Mr. Kasai and the others were in full agreement
that he should have a second chance.”

Kasai, 72, is an outspoken critic of China and during the
first Abe cabinet served on an advisory panel on teaching of
patriotism in Japanese schools. He declined to be interviewed.
Komori, 73, is credited with saving Fujifilm from the fate of
failed imaging rival Kodak.

Their backing stemmed from agreement with Abe’s conservative
agenda rather than specific economic policies.

“The constitution puts individual rights too far out in
front,” said Komori, who with Kasai later became core members of
a more recent corporate-executive support group for Abe, the
Cherry Blossom Association. “Mr. Abe is extremely sensitive to
the merits of restoring that sort of Japanese spirit. I was in
great agreement with that,” he told Reuters.

RETURN TO THE STAGE

Abe met periodically with a quartet of former cabinet-
minister comrades – Suga, Yasuhisa Shiozaki and Yoshimi Watanabe
- who called themselves the Abbey Road Group – a pun on Abe’s
name and the iconic cover of the 1969 Beatles album.

Suga had been working towards Abe’s return from the time he
quit. His reasons, say some who know him, were as much personal
as ideological. “He was a bosom friend,” said one political
source.

The campaign to bring back Abe gathered momentum in 2009
even as public support for the LDP slid under yet another
unpopular prime minister, pushing the long-ruling party towards
the opposition for the first time since it was briefly ousted in
1993-1994.

Abe began to emerge from the shadows, traveling to
Washington in April 2009 to speak at the Brookings Institution,
where he expressed concern about China’s military build-up and
touted “innovation” as the cure for Japan’s economic ills.

His public appearances sparked speculation he was
considering another bid for the premiership, a possibility he
left open in an interview with Reuters in May of that year.

“I want to receive the judgment of the people in the
election, obtain the voters’ trust and work towards my next
goal,” he said then.

Indeed, Abe’s close allies say the August 2009 general
election, which ousted the LDP after ruling Japan for most of
the past half-century, marked a turning point.

Abe went to unusual lengths to ensure he not only kept his
own seat in that poll – never really in doubt – but also
resoundingly defeated his Democratic Party rival. He pounded the
pavement, called on voters at their homes, shook hands at
shopping alleys – rare activities for former prime ministers
with safe seats.

“That was the time I felt that this man definitely intends
to try (for the premiership) again,” said the government source
close to Abe. “He wanted to win by a landslide. I think his
intention was to settle the account with the past that way.”

Abe did win by a landslide, but the LDP was trounced by the
novice Democratic Party of Japan. Now in the opposition, Abe
took over leadership of the True Conservatives Association.

“After we lost power, we thought that if we did not create a
true conservative core, our time in opposition would drag out,”
said Seiichi Eto, a founding member of the group and now a
special aide to the prime minister. “From that time, we carried
out activities like a political party.”

PENSIONS AND POCKETBOOKS

While Abe and his allies remained committed to their
conservative agenda, the failure of his first administration had
taught them one scarring lesson: Voters care more about pensions
and pocketbooks than changing the constitution and reviving
patriotic education.

The program of drastic monetary easing that became central
to “Abenomics” took root in Abe’s agenda after the triple
disasters of March 11, 2001 – a mammoth earthquake, tsunami and
nuclear crisis.

In June of that year, senior LDP member Kozo Yamamoto set up
a group calling for a 20 trillion yen ($200 billion)
reconstruction program to be funded by debt purchased by the
Bank of Japan.

Yamamoto invited Abe to head the group. It later morphed
into an association urging the central bank to set a 4 percent
inflation target – considered an extreme notion to which the BOJ
was staunchly opposed. Abe accepted the role, and through his
association with the group and its mentors such as Yale
University professor Koichi Hamada, became a convert.

Some of Abe’s closest allies, such as Shiozaki, an
ex-central bank official in the Abbey Road group, at first
opposed adopting what they considered extreme economic views.
They particularly objected to a threat to gut the central bank’s
independence by revising its legal charter if it refused to
embark on radical monetary easing.

“What Mr. Yamamoto was saying was a heretical view,” one
government source said. “The study group advocated revising the
BOJ law, and we felt it would be laughed at by world leaders.”

By March 2012, however, it was clear Abe supported a bolder
monetary policy. Business supporters pushed him to rein in the
strong yen, which was battering exporters and pushing output
offshore. A big bout of monetary easing might do just that.

Two months later, Abe impressed business executives at an
exclusive gathering with his economic analysis. He whipped out
color charts comparing the monetary base – cash in circulation
plus deposits at the central bank – under the BOJ, the European
Central Bank and the Federal Reserve.

He used the prop to put the blame for persistent deflation
squarely on Japan’s central bank. “I was stunned that he started
by talking about the monetary base and deflation,” said one
source who attended the meeting.

ABE REDUX

In the spring of 2012, Abe’s allies prepared for a run at
the LDP presidency. Much of the groundwork was laid by the True
Conservatives Association, now renamed Sosei Japan (Japan
Rebirth). Education reform and revising the constitution topped
the list of policies, but the proto-platform also called for a 3
percent inflation target.

Speculation about an Abe comeback grew in April, when he met
outspoken Osaka Mayor Toru Hashimoto, who hoped to woo Abe to
the new right-leaning Japan Restoration Party he was planning to
set up. Abe rejected the overture.

“He told me around last May that he would not join the Japan
Restoration Party and wanted to seek a second chance from the
LDP,” said Watanabe of the Abbey Road quartet, recalling a late
night chat in a bar in Tokyo’s Roppongi nightspot.

His allies gave Abe conflicting advice over whether he
should run in a September vote for leadership of the LDP. Some
said it was too soon, others that he should grab the chance.

Ahead of Japan’s mid-August summer Obon holidays, when
spirits of ancestors are honored, Suga and another close ally
visited Abe in his office for another appeal. They told him his
chances of victory over two front-runners were at least 50-50.
Abe promised to consult his wife, Akie.

He declared his candidacy on Sept. 12, 2012 – five years to
the day after quitting – and won the leadership race in a rare
second round run-off. Campaigning on pledges to revive Japan’s
economy and diplomacy, Abe then led his party to a landslide
December election win.

Back in office, the prime minister and his inner circle -
many from his first attempt to govern – have applied lessons
learned from that early failure, when the government message was
more cacophony than harmony.

Allies credit Suga, 64, now in the key post of chief
cabinet secretary, with running the tight government ship that
eluded Abe the first time.

Unlike during his first term, cabinet ministers rarely speak
out of turn. Abe is kept front and center in the media through
interviews, news conferences and Facebook postings. Abe spends
considerable effort wooing media executives but shuns the brief
daily stand-up Q&A sessions with reporters that tripped him up
the first time.

For all the change in style, those close to Abe say his
ultimate goal remains unchanged.

“He intends to be in office for four or five years and in
the end, he wants to revise Article 9 of the constitution,” said
another government source. The pacifist clause, if taken
literally, bans Japan from maintaining a military, but has been
stretched to allow armed forces now bigger than Britain’s.

This time Abe is pushing first for procedural changes to the
constitution’s Article 96 to lower the hurdle for revisions.
Currently, Article 96 requires that amendments be approved by
two-thirds of the members of each house of parliament, followed
by a majority of voters in a public referendum. The LDP wants to
change that to a simple majority in parliament, followed by the
public vote.

Critics say such an amendment would leave the constitution
vulnerable to easily shifting political winds.

One recent Sunday, the media-savvy Abe made what looked to
some like a pitch for the revision at the ballpark. After giving
two popular Japanese baseball greats – including former New York
Yankees star Hideki Matsui – a national award, Abe got a present
of his own – a jersey with the number 96. He donned the shirt
and strode onto the field at Tokyo Dome stadium before 46,000
fans and live TV cameras.

Asked later if the number referred to the proposed change in
the charter, Abe replied with a smile: “The uniform is because I
am Japan’s 96th prime minister.”

Seven decades later, the 91-year-old retired Christian pastor says it’s his mission to speak out about the injustice of the war and the sufferings of women, mostly Asian and many Korean, forced to work in Japanese wartime military brothels.

“I feel like a war criminal. It is painful to speak of such things and I would rather cover it up. It is painful, but I must speak,” the slender, white-haired Matsumoto told Reuters in an interview at his daughter’s home about 40 km (25 miles) from Tokyo.

“I think that to speak out is the meaning of my being alive,” added Matsumoto, who returned to Japan in 1946 and later became the pastor of a Christian church. He is one of a dwindling number of veterans with experience of the brothels.

Outspoken Osaka Mayor Toru Hashimoto sparked a firestorm of criticism at home and abroad when he said last week that the military brothel system was “necessary” at the time and that Japan has been unfairly singled out for practices common among other militaries during wartime.

The remarks outraged China, where many suffered under Japan’s military occupation, and South Koreans, where bitter memories of Japan’s 1910-1945 colonial rule run deep.

They also sparked a backlash in Japan. Support for Hashimoto’s right-leaning Japan Restoration Party, already sliding, has fallen further ahead of an upper house election just two months away and another small party has broken off ties with it.

As a medic stationed in Yu County in China’s Shanxi Province during the war, Matsumoto helped doctors examine a half dozen Korean women who provided sexual services for officers and non-commissioned officers, part of an effort to stem the spread of venereal disease among soldiers.

Whatever the rationale at the time, Matsumoto said, the system and the treatment of the women – known euphemistically as “comfort women” – were inexcusable.

“NO EXCUSE”

“It is not just Japan that did something wrong. But Japan also did something wrong … Just because someone else is a thief, is it all right to be a thief? Because someone else kills people, is it all right to be a murderer? That is no excuse,” Matsumoto said.

“The prime minister of Japan should apologize properly as the representative of the nation and compensate those who should be compensated.”

Prime Minister Shinzo Abe caused controversy during his first 2006-2007 term by saying there was no proof that Japan’s military had kidnapped women for the brothels. Such doubts are common among Japanese ultra-conservatives.

But Abe has sought to distance himself from Hashimoto’s remarks, saying his government’s stance is different.

“The stance of the government on this issue is that, as we stated previously, we are deeply pained when thinking of the women who experienced immeasurable pain and suffering. On this point, the Abe cabinet has the same position as prior cabinets,” Chief Cabinet Secretary Yoshihide Suga told a news conference last week, although he declined direct comment on Hashimoto’s remarks.

The issue has often frayed ties between Tokyo and Seoul. Japan says the matter of compensation was settled under a 1965 treaty establishing diplomatic ties. In 1995, Japan set up a fund to make payments to the women from private contributions, but South Korea says that was not official and so not enough.

Matsumoto said the women had no means of escape from the walled town where his military unit was headquartered and were in fact sex slaves. “No matter if they wanted to flee, there was no way to escape,” he said.

Recalling the conditions in which the women lived, Matsumoto said soldiers lining up for sex would unfasten their leg wrappings and lower their trousers so as to waste no time when their turns came. “It was like they were going to the toilet,” he said.

Only years later did Matsumoto come to believe his country had done something wrong. “We were taught that it was the mission of Japan, the mission of the Japanese people, to liberate Asian countries from European colonialism,” he said.

“So we went to war gladly then. When I think of it now, it was monstrous, but I didn’t think so then.”

(Editing by Raju Gopalakrishnan)

Isao Iijima’s trip to the North Korean capital, Pyongyang, and his talks with senior officials there have irritated South Korea and analysts said possibly the United States as well, although China has been more positive about it.

Iijima, a close aide to Prime Minister Shinzo Abe, went to the North on Tuesday, several weeks after tension subsided in the region.

North Korea had for weeks said it was on the verge of nuclear war with the South and the United States after the United Nations imposed new sanctions in response to North Korea’s third nuclear test.

“This mission … is still underway,” Glyn Davies, U.S. special representative for North Korea policy, told reporters, referring to Iijima’s visit.

“I think we have some days to wait, all of us, before we know if there are any results from this mission,” Davies said.

“We all have fundamental security interests in dealing with North Korea … It is important that we stay connected very closely.”

Davies spoke after meeting Shinsuke Sugiyama, a senior Japanese foreign ministry official. Davies said he had received no advance notice of Iijima’s trip.

South Korea bluntly expressed its irritation at the trip.

“We don’t think Isao Iijima’s visit to North Korea was helpful,” said South Korean foreign ministry spokesman Cho Tae-Young said.

China said it hoped the visit would help ease tension.

“SCORING POINTS”

According to North Korean state media, Iijima has met the titular head of state, Kim Yong-nam, and the ruling Workers’ Party’s top official in international relations, Kim Yong-il.

Abe and his top spokesman have been silent about the purpose of the visit, but experts said it was probably aimed at scoring diplomatic points ahead of an upper house election in July.

Abe’s Liberal Democratic Party (LDP) is expected to win the poll but it wants a huge victory to cement its grip on power.

“(Abe) wants to achieve some movement in relations with North Korea ahead of the upper house election. I don’t think there will be any huge advance, though,” said Masao Okonogi, a North Korea expert at Keio University in Tokyo.

A confidential report by a U.N. panel of experts, seen this week by Reuters, said the tougher sanctions had significantly delayed expansion of the North’s nuclear arms programme.

Analysts have also said Japan has felt left out as the United States, China and South Korea take the lead in trying to confront Pyongyang’s nuclear ambitions.

Tokyo’s often testy relations with Beijing and Seoul have been further strained by feuds over disputed isles and recent remarks by Japanese politicians that appeared to try to justify its wartime aggression in Asia.

Iijima, also an aide to former prime minister Jinichiro Koizumi when he held summits in Pyongyang, might succeed in reopening talks on the topic of Japanese citizens kidnapped by Pyongyang’s agents decades ago, Keio’s Okonogi said.

Abe told a parliamentary panel on Wednesday he was open to meeting North Korea’s young leader, Kim Jong-un, if a summit would help resolve the issues of the abductees’ fate and North Korea’s nuclear and missile programmes.

Kim Jong-un’s father, the late Kim Jong-il, admitted during Koizumi’s 2002 visit that Pyongyang’s agents had kidnapped 13 Japanese citizens in the 1970s and 1980s.

Five abductees were later repatriated. Pyongyang says the other eight are dead but Tokyo wants more information about them and others it believes were also kidnapped.

(Additional reporting by Kiyoshi Takenaka in Tokyo, Megha Rajagopalan in Beijing and Ju-min Park in Seoul; Editing by Ron Popeski and Robert Birsel)

Abe has promised to make structural reform and deregulation
a key part of his growth strategy, the third tranche of his
“Abenomics” prescription after hyper-easy monetary policy and
big spending.

The monetary and fiscal stimulus has already sparked Japan’s
fastest economic growth in a year in the first quarter, but
corporate investment has yet to follow suit.

“The ‘Third Arrow’ was never going to be a magic bullet
because deregulation means changing behaviour and moving from
vested interests to new entrant investment,” said Jesper Koll,
head of Japanese equities research at JP Morgan in Tokyo.

“But they are pushing ahead. There is a growth strategy. The
radical stuff is out and it was never going to be there, because
you are in a country that is obsessed with creating a
Japanese-style capitalism rather than market fundamentalist,
Anglo-American-style capitalism. It’s still Japan.”

Some fresh details of the strategy could be revealed on
Friday, when Abe is set to speak to business executives and
academics. He unveiled some plans last month, including steps to
make it easier for women to work.

Proposals by a panel on industrial competitiveness and
another on regulatory reform are likely to form the bulk of the
growth strategy. Abe, who took office in December after his
Liberal Democratic Party’s (LDP) election win, says he wants to
announce the policy ahead of a June 17-18 Group of Eight summit
in Northern Ireland.

Among proposals that are seen as positive are plans to
deregulate the energy sector by breaking up utilities’ grip on
the generation, transmission and distribution of electricity;
setting up a U.S.-style National Institute of Health to
consolidate and prioritise medical science investment, and Abe’s
decision in March to enter talks on a U.S.-led free trade pact.

“Right now, I’d give them a ‘B’ for where they are and it
could end up anywhere from an ‘A’ to a ‘D’ depending on how they
follow through,” said Byron Sigel, a former U.S. trade official
who negotiated trade deals with Japan in the 1990s.

“It’s all in the implementation, and how much political
capital people are willing to spend to make tough structural
adjustments – and they will be difficult.”

GOOD INTENTIONS?

Japan has a long history of crafting economic reform
packages full of bold prescriptions and good intentions, many of
which have ended up as empty promises. This time Tokyo is under
international pressure to follow its hyper-easy monetary policy,
which has so far escaped criticism despite the yen’s dive, with
reforms to ensure sustainable growth.

Those longing for sweeping changes, however, look set to be
disappointed by decisions to put off politically painful
measures, at least until after a July upper house election that
Abe’s LDP needs to win handily to ensure that policy proposals
are quickly followed by legislation.

“They are not touching the vital points, such as medical
care and agriculture,” said Junji Annen, a Chuo University
professor who sits on the deregulation panel. “Utilities’ reform
is coming out better than expected, but that is a sign of the
times,” he said, noting that the clout of the politically
powerful utilities had been weakened by the Fukushima nuclear
disaster.

The package is expected to contain a target of doubling
Japan’s miniscule agriculture exports to 1 trillion yen ($9.76
billion), a target Abe may mention when he speaks on Friday.

But it is likely to put off steps to ease barriers to
corporate investment in farming in a nod to a heavily protected
farm lobby, already upset by Abe’s decision to join talks on the
U.S.-led Transpacific Trade Partnership pact.

“It is true there are certain sensitivities because of the
upper house election,” Takeshi Niinami, CEO of convenience store
chain Lawson Inc and a member of the competitiveness panel, told
reporters this week. “Agriculture is one such issue.”

Others areas where the package is likely to come up short
are steps to free up Japan’s rigid labour market to make it
easier for firms to shift to growth industries from depressed
sectors, improvements in corporate governance and addressing the
question of immigration to make up for Japan’s shrinking
population.

Niinami, for one, held out hope that touchy topics would be
taken up after the July election, but Chuo University’s Annen
took a more pessimistic view. “They won’t drop these topics
altogether but the question is will they continue (debate)
vigorously, or reluctantly?” he said.

“It is entirely possible that the LDP wins the election by a
landslide and just goes back to its old ways of catering to
vested interests.”

Abe, 58, returned to office in December for a second term as prime minister and is enjoying sky-high support on the back of his “Abenomics” recipe for reviving the economy through hyper-easy monetary policy, big spending and structural reform.

Now he is seeking to lower the hurdle for revising the constitution as a prelude to an historic change to its pacifist Article 9 – which, if strictly read, bans any military. That would be a symbolic shift, loosening restrictions on the military’s overseas activities, but would have limited impact on defense as the clause has already been stretched to allow Tokyo to build up armed forces that are now bigger than Britain’s.

However, sweeping changes proposed by Abe’s Liberal Democratic Party (LDP) in a draft constitution would strike at the heart of the charter with an assault on basic civil rights that could muzzle the media, undermine gender equality and generally open the door to an authoritarian state, activists and scholars say.

RESTRICTIONS, RESTRAINTS

“What I find strange is that although the prime minister is not that old, he is trying to revive the mores of his grandfather’s era,” said Ryo Motoo, the octogenarian head of the Women’s Article 9 Association, a group devoted to protecting the constitution.

“I fear this might lead to a society full of restrictions, one that does not recognize diversity of opinions and puts restraints on the freedom of speech as in the past.”

Abe’s grandfather Nobusuke Kishi was a pre-World War Two cabinet minister who was arrested but never tried as a war criminal. Kishi served as premier from 1957-60, when he resigned due to a furor over a U.S.-Japan Security Treaty.

Riding high in the opinion polls and buoyed by big stock market gains, Abe has grown more outspoken about his conservative agenda, including revising the constitution and being less apologetic about Japan’s wartime past – a stance that has frayed already tense relations with China and South Korea, where memories of Tokyo’s past militarism run deep.

Many Japanese conservatives see the constitution, unchanged since its adoption in 1947 during the U.S.-led Allied Occupation, as an embodiment of Western-style, individualistic mores they believe eroded Japan’s group-oriented traditions.

RIGHTS VS DUTIES

Critics see Abe’s plan to ease requirements for revising the charter and then seek to change Article 9 as a “stealth” strategy that keeps his deeper aims off the public radar.

“The real concern is that a couple of years later, we move to a redefinition of a ‘new Japan’ as an authoritarian, nationalist order,” said Yale University law professor Bruce Ackerman.

The LDP draft, approved by the party last year, would negate the basic concept of universal human rights, which Japanese conservatives argue is a Western notion ill-suited to Japan’s traditional culture and values, constitutional scholars say.

“The current constitution … provides protection for a long list of fundamental rights – freedom of expression, freedom of religion,” said Meiji University professor Lawrence Repeta. “It’s clear the leaders of the LDP and certain other politicians in Japan … are passionately against a system that protects individual rights to that degree.”

The draft deletes a guarantee of basic human rights and prescribes duties, such as submission to an undefined “public interest and public order”. The military would be empowered to maintain that “public order.”

One proposal would ban anyone from “improperly” acquiring or using information about individuals – a clause experts say could limit freedom of speech. A reference to respect for the “family” as the basic social unit hints, say critics, at a revival of a patriarchal system that gave women few rights.

“The constitution is there to tie the hands of government, not put duties on the people,” said Taro Kono, an LDP lawmaker often at odds with his party on policies. “There are some in both houses (of parliament) who don’t really understand the role of a modern constitution.”

WRITTEN BY HUMANS

Abe and the LDP say easing the revision procedures would allow voters a bigger say in whether to alter the charter.

“The constitution is not something given by God, it was written by human beings. It should not be frightening to change it so I’d like the people to consider trying it once,” Yosuke Isozaki, an aide to Abe, told the Nikkei business daily.

Under Article 96, changes to the constitution must be approved by at least two-thirds of both houses of parliament and then a majority of voters in a national referendum. Abe wants to require a simple majority of lawmakers before a public vote.

With Abe’s popularity high and the main opposition splintered, the LDP and smaller pro-revision parties appear to have a shot at winning a two-thirds majority in an upper house election in July. They already hold two-thirds of the lower house.

“It’s not as easy as it might appear,” said Sophia University political science professor Koichi Nakano. “But for the first time, it’s a realistic prospect.”

Japan celebrates Constitution Day on Friday.

(Editing by Ian Geoghegan)

This week’s friction with China and South Korea over disputed territory and history showed once more that the past still looms large over diplomacy in East Asia.

The conservative Abe’s efforts to recast that history in a less apologetic tone and ease the limits of a pacifist, U.S.-drafted constitution on the military are likely to further strain already fraught ties with Beijing and Seoul.

The popular 58-year-old Abe, who regained office for a rare second term in December, had pledged in his Liberal Democratic Party’s campaign platform to make April 28 “Return to Sovereignty Day”, marking the formal end of U.S.-led Allied occupation seven years after Japan’s defeat in World War Two.

Seoul and Beijing may have little to say about a commemoration of the day the San Francisco Treaty took effect, but the ceremony has a less overt but equally vital message.

“Abe is laying the groundwork for revising the constitution. He wants to remind people that the war is over, the post-war period is over, we are in the 21st century and it is time to turn the page,” said Jeffrey Kingston, director of Asian studies at Temple University’s Japan campus.

“But it’s not so easy. Japan doesn’t get to make the call because its neighbours are eager to keep Japan twisting on the hook of history.”

Abe is enjoying sky-high popularity ratings of over 70 percent as voters applaud his “Abenomics” prescription for boosting the long-stagnant economy with a mix of hyper-easy monetary policy, big spending and structural reform.

Some of Abe’s advisers want him to focus on the economy while keeping his conservative agenda on the backburner, at least until after a July upper house election that the ruling bloc needs to win to cement his grip on power.

But those same high voter ratings appear to be encouraging Abe to show more of his ideological colours, signing off on a visit by his deputy to Tokyo’s Yasukuni Shrine for war dead, seen by critics as a symbol of past militarism, and warning Japan was prepared to “use force” to defend Japanese-controlled islands in the East China Sea that China also claims.

“It is only natural to honour the spirits of the war dead who gave their lives for the country. Our ministers will not cave in to any threats,” Abe told a parliamentary panel on Wednesday. “It is also my job to protect our pride, which rests on history and tradition.”

HISTORIC BITTERNESS

A further flare-up in disputes, with Beijing especially, could threaten the success of “Abenomics” if it damages business ties, which were hit hard last year after a decision by the Japanese government to nationalise disputed isles in the East China Sea triggered violent anti-Japanese protests in China.

“Think how many business executives working in China are tearing their hair out, thinking ‘not again’,” Kingston said. “China is absolutely crucial to Japan’s economy.”

Historic bitterness over Japan’s wartime aggression resurfaced this week after Abe sent a ritual offering and his Deputy Prime Minister Taro Aso visited Yasukuni Shrine. More than 160 lawmakers also paid their respects on Tuesday at its annual spring festival.

Leading politicians’ visits to the shrine, where 14 Japanese leaders convicted as war criminals by an Allied tribunal are honoured with the country’s war dead, have long angered Asian countries where memories of Japan’s past militarism run deep.

Tensions also heated up in a Sino-Japanese row over the disputed islands, known as the Senkaku in Japan and the Diaoyu in China, after a flotilla of Japanese nationalists sailed near the rocky islets and China sent eight surveillance ships into what Tokyo considers its waters.

Abe has spoken out with greater frequency in recent weeks about his desire to revise the constitution, first by lowering the bar for future changes. Under the charter’s Article 96, revisions must be approved by two-thirds of both houses of parliament before holding a national referendum, where a majority must back the change. Abe wants to require a simple majority of lawmakers ahead of the national public vote.

Sunday’s ceremony “is certainly a prelude to revising the constitution. The logic is the same: that we lost our sovereignty, we regained it after the occupation but it will not be fully regained until we revise the constitution that was imposed on us,” said Sophia University professor Koichi Nakano.

“It is giving a foretaste of what is to come.”

(Editing by Alex Richardson)

Japan’s list of reports urging reforms date back almost three decades and have rarely led to the bold action that critics say is needed to dig the economy out of stagnation.

Abe, who got a rare second chance at Japan’s top job after his Liberal Democratic Party’s (LDP) election win in December, has made structural reforms, such as deregulation, the “third arrow” of his “Abenomics” plan to revive the economy.

But scepticism runs deep that he can be as successful with economic reform, which experts say will be the acid test after his first two “arrows” of fiscal spending and hyper-easy monetary policy, a combination that spurred a stock market rally and bolstered Abe’s popularity ratings.

“People somehow think that Japan can get by so it’s not really necessary to take painful steps,” said Junji Annen, a professor at Chuo University who has sat on several past deregulation committees and is now a member of Abe’s new panel.

“We’ve been saying for a quarter century that action must be taken. I don’t think this time will be all that different,” he said, adding the government would face opposition to reforms and might well end up taking incremental rather than drastic steps.

“I worry that if the economy gets a bit better, they will ease up on reform,” Annen said.

Proposals by a panel on industrial competitiveness and another on regulatory reform will be key to a growth strategy that Abe will unveil in June, ahead of a July upper house election that his ruling bloc needs to win to cement its grip on power.

Abe’s advisers, however, are split over how extensive a role government should play in economic affairs. Some are keen to see public funds invested in key sectors, while others want to loosen the government’s tight grip that critics say stifles innovation and new businesses.

Among the topics under discussion are loosening employment rules to make it easier to shed workers, deregulating medical and child care sectors, promoting use of the Internet, reforming corporate governance and overhauling electric power utilities.

REFORM REFRAIN

The list of reports urging reforms date back at least as far as the landmark “Maekawa Report” in 1986, when former central bank chief Haruo Maekawa and other advisers urged policymakers shift from export-led growth, to open markets and to make regulations the exception rather than the rule.

Within months of the report’s issuance, foreign diplomats were complaining that Prime Minister Yasuhiro Nakasone had reneged on promises of change.

Taking up the reform refrain, a blue ribbon panel headed by business lobby Keidanren chief Gaishi Hiraiwa in December 1993 again urged the government to cut the red tape that was stifling growth. Four months after taking that advice on board, Morihiro Hosokawa had quit as prime minister, toppled by talk of a scandal and cracks in his unwieldy reformist coalition.

Much of Japan’s past two “lost decades” of meager growth – including five years under an ostensibly pro-reform premier, Junichiro Koizumi – were also marked by promises to deregulate the economy. Many were kept, but many were not.

“The same issues have come up again and again,” said Yoshihiko Miyauchi, the chairman of financial services firm Orix Corp, who served on a deregulation panel under Koizumi from 2001 to 2006.

“It’s simple – everything we need to do and how to do it can be written up in a day. After that, it’s a question of whether it gets done or not,” Miyauchi told Reuters in an interview.

To be sure, few would argue that no progress has been made. Former economics minister Hiroko Ota, a member of Abe’s deregulation panel, says deregulation has proceeded.

“It is a very slow process but it has proceeded,” she said, citing a freeing up of financial services and the telecommunications sector as two key examples.

Still, Japan’s World Bank ranking for ease of doing business slipped in 2013 to 24th place from 20th the year before, mainly because other economies implemented more aggressive changes.

Singapore ranked first, followed by Hong Kong, while the United States came in fourth and South Korea eighth. China moved up to 91st from 151st.

“PRO-ZOMBIES, ANTI-ZOMBIES”

The split between advisers casts doubt on just how drastic any loosening of bureaucratic controls will be.

“We don’t have explicit confrontations and we don’t yell at each other in meetings, but I am sure that there are different philosophies about how, and how much, the government should be involved in creating the strategy and reforming particular industries,” Hiroshi Mikitani, CEO of e-commerce operator Rakuten and a member of the industrial competitiveness council, told Reuters.

Some panel members, such as Takeshi Niinami, CEO of chain store operator Lawson Inc, played down that gap, saying it reflected different perspectives based on companies’ core businesses. Some, like Rakuten, want the government to step aside and allow innovation now; others in fields where investments may not pay off for decades want official backing.

Others, however, expressed concern that Abe’s LDP would stick to its roots as a “big government” party especially if, as many now expect, it wins big in the July election. “The LDP is not a ‘leave us alone’ party,” Chuo University’s Annen said.

“It’s in favour of a controlled economy.”

Former U.S. trade official Byron Sigel, who negotiated bilateral trade deals with Japan in the late 1990s, echoed those doubts given the persistent clout of anti-reform interests.

“The problem with the way the reform process has been set up is that there is an over representation of entrenched older industries who have the size, connections and motivation to maintain the existing system,” said Sigel, who now works for a global U.S.-based device and pharmaceutical firm.

“The industries of the future, the industries that need a more open deregulated economy to grow and the industries that will restore Japan’s global competitiveness, are still relatively small players, if they exist at all today. Their voice is unlikely to be heard in the reform debate.”

Still, Abe moved more quickly than expected to commit Japan to talks on a U.S.-led trade pact, the Trans-Pacific Partnership, raising hopes history might not repeat itself.

The TPP decision, which has helped keep Abe’s popularity rates at sky-high levels of around 70 percent, was followed on Monday by an agreement with the European Union to start talks on a separate free trade deal that would further boost pressure on protected sectors.

“There is a split between ‘pro-zombie’ and ‘anti-zombie factions, between one set of politicians, bureaucrats, and businesses who want to preserve the current system of vested interests, and different set of politicians, bureaucrats, and businesses who want more open competition,” said Robert Feldman, chief economist at Morgan Stanley MUFG Securities in Tokyo.

“I think the anti-zombie faction will win this time because the standard of living has been deteriorating and I think the public has caught on to this.”

(Editing by Neil Fullick)

Japan’s list of reports urging reforms date back almost three decades and have rarely led to the bold action that critics say is needed to dig the economy out of stagnation.

Abe, who got a rare second chance at Japan’s top job after his Liberal Democratic Party’s (LDP) election win in December, has made structural reforms, such as deregulation, the “third arrow” of his “Abenomics” plan to revive the economy.

But skepticism runs deep that he can be as successful with economic reform, which experts say will be the acid test after his first two “arrows” of fiscal spending and hyper-easy monetary policy, a combination that spurred a stock market rally and bolstered Abe’s popularity ratings.

“People somehow think that Japan can get by so it’s not really necessary to take painful steps,” said Junji Annen, a professor at Chuo University who has sat on several past deregulation committees and is now a member of Abe’s new panel.

“We’ve been saying for a quarter century that action must be taken. I don’t think this time will be all that different,” he said, adding the government would face opposition to reforms and might well end up taking incremental rather than drastic steps.

“I worry that if the economy gets a bit better, they will ease up on reform,” Annen said.

Proposals by a panel on industrial competitiveness and another on regulatory reform will be key to a growth strategy that Abe will unveil in June, ahead of a July upper house election that his ruling bloc needs to win to cement its grip on power.

Abe’s advisers, however, are split over how extensive a role government should play in economic affairs. Some are keen to see public funds invested in key sectors, while others want to loosen the government’s tight grip that critics say stifles innovation and new businesses.

Among the topics under discussion are loosening employment rules to make it easier to shed workers, deregulating medical and child care sectors, promoting use of the Internet, reforming corporate governance and overhauling electric power utilities.

REFORM REFRAIN

The list of reports urging reforms date back at least as far as the landmark “Maekawa Report” in 1986, when former central bank chief Haruo Maekawa and other advisers urged policymakers shift from export-led growth, to open markets and to make regulations the exception rather than the rule.

Within months of the report’s issuance, foreign diplomats were complaining that Prime Minister Yasuhiro Nakasone had reneged on promises of change.

Taking up the reform refrain, a blue ribbon panel headed by business lobby Keidanren chief Gaishi Hiraiwa in December 1993 again urged the government to cut the red tape that was stifling growth. Four months after taking that advice on board, Morihiro Hosokawa had quit as prime minister, toppled by talk of a scandal and cracks in his unwieldy reformist coalition.

Much of Japan’s past two “lost decades” of meager growth – including five years under an ostensibly pro-reform premier, Junichiro Koizumi – were also marked by promises to deregulate the economy. Many were kept, but many were not.

“The same issues have come up again and again,” said Yoshihiko Miyauchi, the chairman of financial services firm Orix Corp, who served on a deregulation panel under Koizumi from 2001 to 2006.

“It’s simple – everything we need to do and how to do it can be written up in a day. After that, it’s a question of whether it gets done or not,” Miyauchi told Reuters in an interview.

To be sure, few would argue that no progress has been made. Former economics minister Hiroko Ota, a member of Abe’s deregulation panel, says deregulation has proceeded.

“It is a very slow process but it has proceeded,” she said, citing a freeing up of financial services and the telecommunications sector as two key examples.

Still, Japan’s World Bank ranking for ease of doing business slipped in 2013 to 24th place from 20th the year before, mainly because other economies implemented more aggressive changes.

Singapore ranked first, followed by Hong Kong, while the United States came in fourth and South Korea eighth. China moved up to 91st from 151st.

“PRO-ZOMBIES, ANTI-ZOMBIES”

The split between advisers casts doubt on just how drastic any loosening of bureaucratic controls will be.

“We don’t have explicit confrontations and we don’t yell at each other in meetings, but I am sure that there are different philosophies about how, and how much, the government should be involved in creating the strategy and reforming particular industries,” Hiroshi Mikitani, CEO of e-commerce operator Rakuten and a member of the industrial competitiveness council, told Reuters.

Some panel members, such as Takeshi Niinami, CEO of chain store operator Lawson Inc, played down that gap, saying it reflected different perspectives based on companies’ core businesses. Some, like Rakuten, want the government to step aside and allow innovation now; others in fields where investments may not pay off for decades want official backing.

Others, however, expressed concern that Abe’s LDP would stick to its roots as a “big government” party especially if, as many now expect, it wins big in the July election. “The LDP is not a ‘leave us alone’ party,” Chuo University’s Annen said.

“It’s in favor of a controlled economy.”

Former U.S. trade official Byron Sigel, who negotiated bilateral trade deals with Japan in the late 1990s, echoed those doubts given the persistent clout of anti-reform interests.

“The problem with the way the reform process has been set up is that there is an over representation of entrenched older industries who have the size, connections and motivation to maintain the existing system,” said Sigel, who now works for a global U.S.-based device and pharmaceutical firm.

“The industries of the future, the industries that need a more open deregulated economy to grow and the industries that will restore Japan’s global competitiveness, are still relatively small players, if they exist at all today. Their voice is unlikely to be heard in the reform debate.”

Still, Abe moved more quickly than expected to commit Japan to talks on a U.S.-led trade pact, the Trans-Pacific Partnership, raising hopes history might not repeat itself.

The TPP decision, which has helped keep Abe’s popularity rates at sky-high levels of around 70 percent, was followed on Monday by an agreement with the European Union to start talks on a separate free trade deal that would further boost pressure on protected sectors.

“There is a split between ‘pro-zombie’ and ‘anti-zombie factions, between one set of politicians, bureaucrats, and businesses who want to preserve the current system of vested interests, and different set of politicians, bureaucrats, and businesses who want more open competition,” said Robert Feldman, chief economist at Morgan Stanley MUFG Securities in Tokyo.

“I think the anti-zombie faction will win this time because the standard of living has been deteriorating and I think the public has caught on to this.”

(Editing by Neil Fullick)

That inclines politicians to push policies that favor welfare and protectionism at the expense of measures to boost economic growth, the critics say, and so could act as a drag on efforts to reform the economy and lower barriers to trade.

“There is a very clear trend to over-represent older prefectures, and that means the Diet (parliament) is stacked in favor of higher spending for pensions, welfare and medical care at the expense of the interests of younger people – education, R&D and economic sustainability,” said Robert Feldman, chief economist at Morgan Stanley MUFG Securities in Tokyo.

“The more aggressive they get on electoral reform, the more likely they are to do pro-growth policies because you change the incentives,” Feldman said.

The rulings by the Hiroshima High Court on Monday and Tuesday are expected to be reviewed by the Supreme Court and so pose no immediate threat to the three-month-old government of Prime Minister Shinzo Abe.

Experts said, however, that Abe’s Liberal Democratic Party (LDP) and opposition rivals were likely to do the minimum needed to satisfy the judiciary, so the bias is unlikely to be wiped out.

An electoral system that has kept the LDP in power for most of the past six decades has long been criticized for giving excess influence to rural farmers. But analysts said the gap between the clout of Japan’s growing ranks of elderly and its youth was even more striking given the trend of younger Japanese to migrate to cities, leaving their elders behind.

MINIMAL STEPS?

Japan’s Supreme Court ruled in 2011 that because one vote in the least populous district effectively carried the weight of more than two votes in the most populous constituency, the 2009 lower house election was held in “a state of unconstitutionality”. But it declined to rule the poll as invalid to avoid political chaos.

The Hiroshima cases were among 16 suits filed across Japan after the December election, in which the maximum disparity was 2.43 to one.

On Monday, the Hiroshima court ruled the election outcome in two constituencies in the southwestern prefecture not only unconstitutional but invalid – an unprecedented judicial move. A day later, it handed down a similar ruling for a constituency in a nearby prefecture, Kyodo news agency said.

Local election boards are expected to appeal.

After the 2011 decision, lawmakers passed a bill to redress the imbalance by cutting one seat from each of five sparsely populated prefectures. But they had yet to finalize the redistricting plan when a snap election was called last year by Yoshihiko Noda, the prime minister at the time.

Even that law did not tackle what the Supreme Court had said was a fundamental problem of the lower house electoral system, the fact that each of Japan’s 47 prefectures is automatically awarded at least one seat regardless of its population.

Analysts said lawmakers, who have been squabbling over other changes to the electoral system, were likely to take minimal steps in hopes the Supreme Court would be appeased.

“It’s another warning and it was stronger and symbolic but the easiest course (for parliament) is to say, ‘We have decided on the reform last year and when redistricting is done, it’ll be fine’,” said Kocihi Nakano, a political science professor at Sophia University in Tokyo.

“The LDP wouldn’t have much incentive (for more sweeping change),” he said. “It goes to the heart of the LDP system, a paternalistic approach that says we get your vote and we take care of you. It goes against an efficient market and innovation, but it takes care of people who are not favored by the market.”

(Reporting by Linda Sieg; Editing by Neil Fullick)