From the outside, the headquarters of Japan's Liberal Democratic Party gives little away. The unremarkable eight-story yellow structure located in Nagatacho, the Tokyo district that houses the country's main political institutions, has nothing more than a small sign with the party name's affixed to a low stone wall at its entrance to announce its tenant. But inside, a triumphant atmosphere prevails.

Shinzo Abe, Japan's 58-year-old prime minister and the party's president, is given rock-star status, posters of his profile gazing into the distance smothering the walls of the first-floor lobby.

In the party president's meeting room on the fourth floor, black and white photos of all of Japan's prime ministers hang on its walls. Abe's picture appears twice.

The first photo of Abe was taken in 2006, when he first attained the pinnacle of power in the country. At the time, he was not only glorifying his family line by following in the footsteps of his maternal grandfather Nobusuke Kishi and great uncle Eisaku Sato, he had also become Japan's youngest prime minister since World War II. Japan, it seemed, was his.

Less than a year later, however, Abe had become a villain of history. His Liberal Democratic Party suffered a crushing defeat in the upper house of Japan's parliament, losing its majority in the body for the first time since the party was founded in 1955.

Recovering from the Depths

Abe's political fortunes already on the decline, the ulcerative colitis that had plagued him since his youth flared up again and grew increasingly serious, sending him to the bathroom as many as 20-30 times a day. His deteriorating health made it impossible to retain his post, and when he resigned, people sensed this scion of a political family could not handle a setback.

After announcing his resignation, Abe began a sojourn in the hospital to have his condition treated, while his wife Akie suffered the humiliation of moving out of the prime minister's residence surrounded by media workers.

Japanese commentator Eitaro Ogawa wrote that Abe's public image was so badly tarnished that an airplane passenger, seeing Abe on a flight, said in a voice loud enough for him to hear: "Miss, is that Abe sitting there? I don't want to sit in the same row as him. Please help me change my seat." The contempt oozing from those words was like a knife piercing Abe's heart.

"Abe is a man who has seen hell," Ogawa wrote.

From that point on, Abe's life was frozen in the past, his identity cemented as a former prime minister. In 2010, Abe led a parliamentary delegation on a trip to Taiwan to celebrate the first direct flight between Taipei International Airport (Songshan) and Haneda Airport in Tokyo. A Commonwealth Magazine reporter observed at the time that during a lively reception for the group at the Ambassador Hotel, Abe was very quiet.

"Japanese society normally doesn't give second chances to people who have tasted defeat. That Abe has risen again is a miracle," says Peng Run-tsu, the former chairman of Taiwan's Association of East Asian Relations, the Ministry of Foreign Affairs' organization responsible for coordinating relations with Japan.

Helping Japan Regain Self-confidence

The second photo of Abe hanging in the LDP president's meeting room was taken six years later than the first, in 2012. Nobody could have imagined that Abe, who had fallen to the depths, would be able to stage a comeback and return as prime minister once again.

He was able to regain a majority in both houses of Japan's parliament, and he confidently declared to the international community in February 2013, "I am back, and so shall Japan be."

He boldly and without hesitation promoted his three arrows of Abenomics: monetary easing to combat deflation, fiscal stimulus to stimulate economic recovery, and a long-term growth strategy focused on private investment.

That boldness and initiative was worlds apart from his previous stint as prime minister.

Tsuyoshi Suganami, the Japanese president of Dentsu Media Palette Taiwan, the Taiwan branch of Japan's biggest advertising and public relations firm, says that when Abe was first elected prime minister, he could not step out from under the long shadow of his charismatic predecessor, Junichiro Koizumi. He was also stymied by criticism from the LDP's competing factions, leaving him indecisive and his administration paralyzed. But after he resigned, he spent time soul-searching, Suganami says.

Japanese media believe that one of the main lessons Abe learned was that the ways of the past were wrong and had to be reconsidered, whether it was dealing with domestic issues or choosing members of his Cabinet.

During the years when he retreated into obscurity and his life hit a low point, he reflected most on where Japan should stand in the future.

"The greatest crisis facing Japan lies in the Japanese people having lost confidence. It is certainly true that the Japanese economy is in a serious state, and that these are not simple issues that can be solved today or tomorrow," Abe said in his first speech to the Diet of the year on Jan. 28, 2013. "However, should we lose the mettle to say, 'I will grow going forward, making use of my own abilities,' neither individuals nor countries will be able to carve out a bright future."

Although in the past Abe had never been known for his grasp of economics, he formed a group under the auspices of the LDP dedicated to strategizing Japan's economic revival, holding classes on a regular basis focused on the country's economic problems, with both Japanese and international economists as guest lecturers.

After he was elected, Abe set up a group of trusted consultants as "special advisors to the Cabinet," including Koichi Hamada, professor emeritus of economics at Yale University, and Kyoto University professor Satoshi Fujii.

Bold Offensive to Restore Growth

In addition, in contrast to the "crony Cabinet" he assembled in his first stint as prime minister, Abe has chosen a much more seasoned team this time around.

For instance, former Asian Development Bank president Haruhiko Kuroda had no personal ties to Abe, but he was nonetheless invited to head Japan's central bank because of his expertise on international banking and his support for monetary easing. He is now the standard-bearer for the first arrow of Abenomics, easing monetary constraints and fighting deflation.

To avoid the constant confrontations with Japan's bureaucracy that plagued his administration in 2006 and 2007, Abe also appointed a number of people with backgrounds in the civil service to promote internal cohesion.

He used a similar tactic to maintain balance within his own LDP. Abe and his chief rival in the party, Shigeru Ishiba, fought a contentious battle last year for the party presidency. Ishiba had higher poll ratings, but he lost out to Abe in the second round of balloting among LDP parliamentarians.

After Abe won the party's top post, he named Ishiba LDP secretary-general and reappointed him to the position after the LDP's general election victory in December 2012, appeasing potential voices of discontent within the party and turning the LDP into a stabilizing force for his government.

Abenomics not only drew the attention of the international community, but also had the support of Japan's people. "Abenomics gave comfort to citizens' emotions. Everybody knew that there had not been any tangible change, but they were willing to give him a chance," says Asahi Shimbun journalist Tsuyoshi Nojima.

Since Abe's return to power, Japan has posted much faster growth than previously, with growth rates of 3.8 percent in the first quarter and 2.6 percent in the second quarter, compared with 0.1 percent growth in the fourth quarter of 2012.

The Financial Times said the second-quarter growth figure "would have been seen as a straightforward blessing at almost any time in the past 20 years. It was the third consecutive quarter of growth and the rate was almost three times greater than the average during Japan's 'lost' two decades."

Real and Imaginary Growth Factors

The second-quarter figures were not all positive, however. Private-sector capital expenditure fell 0.1 percent, an indication that even as most corporations were seeing their profits rise, they were holding on to them rather than making new investments.

According to Richard Koo, chief economist at the Nomura Research Institute, the greatest challenge for Abenomics is persuading companies to take out loans and invest. "What we need to do here in Japan is to get these guys to borrow money again," he says.

A major reason that Japan has been mired in a balance-sheet recession, Koo says, is that companies have not borrowed from banks or raised funds in capital markets even with borrowing costs near zero.

In his second go-round as prime minister, Abe has shown an appetite for addressing this and other long-term fundamental problems rather than indulging public opinion and its focus on the here and now.

One example is Abe's solid backing for a proposal to increase Japan's national sales tax next year to 8 percent, from 5 percent at present. Experts are divided on the idea, with critics fearing that Abe will fall into a "tax-increase trap." As soon as the sales tax goes up, they argue, it will deal a blow to hard-won growth in private consumption.

But based on what CommonWealth reporters saw in Japan, Abe has the support of his party caucus and the media on the issue and has developed a consensus on it with the public.

Yuriko Koike, a member of Japan's lower house in the Diet, the House of Representatives, says the LDP has been determined since returning to power to responsibly tackle the country's chronic debt woes.

"Japan's national debt problem is simply too serious, and we need to raise the consumption tax rate and increase tax revenues. This was passed by the Diet last year and will not change," Koike says.

Tsuyoshi Nojima agrees. "All five of Japan's major media organizations support raising the sales tax," he says. Assessing the relative credibility of different news sources in the country, Nojima says the Japanese believe newspapers more than TV news or the Internet. Citizens dispassionately analyze the situation through newspapers and then form a public consensus on the issue.

The battle over the sales tax reflects how Abe plans to balance the country's short- and long-term interests. He will soon have to also confront increasingly impatient global investors who are shifting capital in and out of markets round the world and contributing to market volatility in Japan. Still, he has retained the support of the Japanese public, which is hopeful that the economy can be improved, and more than 60 percent of the seats in the two houses of the Diet.

Abenomics will wade into the deepest reform waters, however, when it tackles the program's third pillar of growth: structural reforms.

Opening up, Invest in Asia

Japan's growth strategy involves revamping the country's industrial structure and opening its market more widely to the outside world.

Throughout history, whenever Japan has been willing to open its doors, modernize and learn, the result was the forging of substantial national power. Representative Koike says the country is now opening up again for the third time in its past, following the Meiji Restoration and the post-World War II period.

Prior to the Meiji Restoration, Japan had isolated itself for 250 years. Advocates of liberalization, such as Ryoma Sakamoto, pushed Japan into building a modern country. After World War II, a Japanese society mired in depression learned from the West, and by the 1980s the country had become a world economic power.

Today, following the country's lost two decades, Japan has begun to rethink its long-standing approach of Datsu-A Ron, an orientation away from the rest of Asia and toward Europe. Instead, it is more actively re-engaging with its regional neighbors, shifting especially quickly toward the Association of Southeast Asian Nations (ASEAN) and expressing interest in joining the Trans-Pacific Partnership (TPP).

Soon after Abe took office, he visited many ASEAN countries – Vietnam, Thailand, Indonesia, Myanmar, Singapore, the Philippines, and Malaysia – and the Mekong River Delta took shape as the favored destination for increased investment by Japanese businesses.

Japan also aspires to becoming "a Japan that Asia needs" based on a spirit of equality and cooperation. As it embraces Asia on a large scale, what are the implications for Taiwan?

Taiwan's Opportunities and Challenges

"In terms of Taiwan, there are opportunities at the economic level and challenges at the political level," says Chiang Pin-kung, chairman of the Taiwan Institute of Economic Research. A former chairman of the Straits Exchange Foundation, Taiwan's main liaison with China, Chiang is one of Taiwan's "old Japan hands," well-versed in the triangular economic relations of Taiwan, Japan and China.

Chiang believes that Japan's economic and diplomatic shift back to Asia, fusing advanced, sophisticated technology with ASEAN's market of 620 million people (the European Union has a population of 500 million) will catalyze a second "flying geese model" (the process of regional economic stimulus through technology transfer) and drive fast-paced growth in Southeast Asia. It will also engage Asia's growing middle-class market.

"Traditionally, Taiwanese and Japanese industries have been highly complementary, and Taiwan and the ASEAN countries have an established division of labor. The advantages of Taiwan-Japan cooperation can be used to jointly advance into ASEAN markets," Chiang says.

Politically, however, the picture is far more complicated.

That's because Abe's administration is Japan's most nationalist government since 1945.

Asia's territorial disputes, pitting the world's second, third and 15th-largest economies (China, Japan and South Korea) against each other, represent the greatest threat to peace in the region aside from North Korea.

When Abe's party regained control of the Diet's upper house in July, the Global Times, an official Chinese media outlet under the People's Daily, saw relations between Japan and China entering a permanent state of friction.

"We have created a new term to describe the state of the current Sino-Japan relationship – 'cold confrontation' – because the bilateral relationship has steered away from normal state-to-state ties but not entered into a new 'cold war,'" the editorial on July 23 read.

"Massive economic and trade exchanges prevent the two from slipping toward a 'cold war' or a 'hot war.' But it's also impossible to return to a friendly neighborly relationship," the editorial added.

The Global Times also suggested that China's relations with the United States and Russia were far more important at present than relations with Japan, and argued that giving Japan the cold shoulder would be enough to put Tokyo under pressure.

The Battle between Abe's Head and Heart

On Aug. 15, the 68th anniversary of Japan's surrender ending World War II, a misty rain fell on the Yasukuni Shrine, a monument that evokes sadness in the Japanese and anger and agony in countries attacked and occupied by Japan during the war.

Located in the heart of Tokyo, the Shinto shrine houses the souls of the nearly 2.5 million people who have died in the service of Japan's empire since the Meiji Restoration, including 2.3 million who died during the Second Sino-Japanese War and World War II. Among those 2.3 million are the souls of 14 "Class A" war criminals, and it is honoring them, and the implication that Japan is unrepentant over its wartime aggression, that outrages the country's neighbors.

On the misty anniversary day, however, those visiting the shrine were ordinary Japanese of all ages, there to pay their respects to Japan's war dead by closing their eyes, clasping their hands together, and bowing deeply. One Japanese woman sobbed uncontrollably as she watched a commemorative video.

"The Yasukuni Shrine is the only place during this life where my friends who died during the war and I can meet. It's not to cherish the memory of war," says 81-year-old writer Ayako Sono.

But when people from around Asia visit the shrine, they find no traces anywhere of Japan's reflection on its role as the aggressor during World War II or any signs of contrition. As a consequence, whether Japanese politicians decide to visit or stay away from Yasukuni Shrine, especially on Aug. 15, has, in the eyes of the international community, become a key benchmark of their view of history.

This year, Abe opted not to visit the shrine, but he did make a donation in his capacity as leader of the LDP.

As Columbia University political science professor Gerald Curtis, a leading scholar on modern Japanese politics and foreign policy, commented, "Mr. Abe has an internal struggle between his head – the pragmatic realist – and his heart."

In Curtis's view, Abe is a realist in his head, but a nationalist in his heart. He knows intellectually that Japanese citizens and global markets expect him to reform the economy, but deep down in his heart, his greatest ambition is to revise Japan's peace constitution and provide the conditions for an independent nation.

Abe, a true nationalist who was able to wash away his shame and turn defeat into victory, is attempting to lead the world's third largest economy on the road to recovery. The bright side and the dark side of Japan's revival are reflected in the two forces tugging at the prime minister's head and heart, and this is the most pressing issue today for those round the world with an eye on Asia.

Translated from the Chinese by Luke Sabatier