By Max Sato
(MaceNews) – After Friday’s assassination of Shinzo Abe, architect of the reflationary economic policy mix dubbed Abenomics, Prime Minister Fumio Kishida has yet to show whether his “new capitalism” is a better alternative in revitalizing Japan.
During the ruling party leadership election campaign last year, Kishida floated the idea of shifting from two decades of market-oriented policies “based on neo-liberalism” in the longer term toward narrowing the income gap in “a positive cycle of growth and (wealth) distribution.”
Since taking office last October, Kishida has not provided specifics on exactly how his administration can persuade companies sitting on massive cash reserves to share their wealth with workers with a higher pace of wage hikes, and how his idea differs from Abe’s three-prong approach of flexible fiscal spending, large-scale monetary easing and pro-growth structural reforms aimed at overcoming years of deflation and raising Japan’s growth potential.
The Kishida administration has been tied up with applying Band Aid solutions to short-term issues, such as fighting the resurgence of coronavirus infections and cushioning the impact of surging food and energy prices.
Ahead of upper house elections on Sunday, Kishida has defended the Bank of Japan’s monetary easing stance aimed at supporting economic recovery that began in April 2013 under Abenomics, while the main opposition Constitutional Democratic Party of Japan is calling for a change to the BOJ’s stance, which it says is helping the yen depreciate further and pushing up import costs.
The government has been focused on giving handouts to needy households during the pandemic, as was the previous administration under Yoshihide Suga, and providing subsidies to refineries to cap the markups in retail gasoline prices. If Kishida were to change the status quo, he could promote a shift toward greener energy consumption from burning fossil fuels more aggressively by allocating a bigger budget for the development of electric cars and batteries as well as charging stations.
Back in 2010, before the era of Abenomics, Kosuke Motani, chief senior economist at Japan Research Institute, pointed out that deflation was caused by the demographic shift. Japan’s working population has been shrinking, which means there are fewer people to produce and consume. He has warned that massive cash injections in the banking system by the BOJ would not boost consumption because it is not dealing with the root cause.
Motani has been making specific proposals to revitalize rural economies as a key to lifting Japan’s growth potential.
“For regional vitalization, the spreading of telecommuting (during the pandemic) and increasing numbers of people moving to rural areas are presenting a great opportunity, but bureaucrats in the central government are cutting schools, child medical care and train services in isolated areas,” he told the Mainichi Shinbun daily this week. “To revive rural communities, we must preserve those things that already exist, not creating something new. I wonder if the prime minister understands that point.”
“We have record high tax revenues and fiscal spending. Why do we have to make the life of underpopulated areas more inconvenient? They have much higher birthrates than in the urban areas and seniors can live without depending on welfare,” Motani said.
Kishida wants to see businesses make more investment in human resources as part of his revitalization plans under the “new capitalism.” In the fiscal 2022 budget, the government is offering to give tax breaks to firms that are raising wages or providing staff training programs.
But history shows it is hard to entice corporate managers who are still mired in the deflationary mindset to push up base wages, not just pay employees one-time bonuses, because customarily it is difficult to lower fixed employee compensation once it is raised.
The Abe administration gradually lowered the effective corporate tax from 34.62% in fiscal 2014 to 29.74% in fiscal 2018, hoping that companies would use the extra money to invest in equipment and raise wages. Instead, firms continued hoarding cash and average wages remained flat for decades, staying nearly half of the level in the U.S. and falling behind South Korea’s recently.
Kishida is also pushing for a “digital garden city nation” to “achieve rural-urban digital integration and transformation” but it is not clear how it is different than what the previous administration was trying to do under the Digital Agency launched last September, which is charged with cutting the bureaucratic red-tape by integrating national and regional government data bases.
Kishida’s cabinet and the Liberal Democratic Party have maintained lukewarm but solid voter support going into Sunday’s elections in the absence of major blunders by cabinet members or serious political scandals. Opposition parties remain largely fragmented, finding it hard to coordinate their election platforms and policy goals.
The public approval rating of the cabinet stood at 54% in an opinion poll conducted by public broadcaster NHK from July 1 to July 3, up from 50% a week earlier but lower than 55% two weeks before and 59% three weeks ago. The disapproval rating was unchanged at 27% in the latest survey but was up from 23% four weeks before the election.
Of the 248 seats of the House of Councillors, 125 seats (including one vacancy) are contested. Since the LDP and its coalition partner Komeito hold 70 seats together in the uncontested part of the chamber, they could maintain a majority in they won a combined 55 seats on Sunday. In the contested seats, the LDP holds 55 and Komeito 14.
“If the election results come as expected, with the ruling coalition winning more than 63, the majority of the contested seats, financial markets will regard it as increased political stability, leading to higher stock prices and a weaker yen,” Takahide Kiuchi, executive economist at Nomura Research Institute, wrote in his column published Friday, adding that the markets are unlikely to move much as they have already priced in the prospect of the ruling coalition maintaining a majority in the upper house.
Kishida is likely to win “golden three years,” wrote Kiuchi, who was a Bank of Japan board member from 2012 to 2017. “Since the current term of the lower house (after last year’s election) ends in October 2025, there will be no national election for three years until the summer of 2025 unless he dissolves it (the lower house). This means he will have time to implement policy measures based on the medium- to long-term prospects that may cause pain without worrying about election results.”
Last year, Kishida criticized neoliberalism that has lasted since the administration of Junichiro Koizumi, an LDP prime minister from 2001 to 2006, who opened up the labor market to staffing agencies without providing social security networks for a growing number of underpaid contract workers, many of them women and young people.
But Kiuchi noted that Kishida has already adjusted his stance to a more market-friendly tone by emphasizing that Japanese should move “toward investment from savings,” a slogan under Koizumi. Japan faces a tight public pension budget in a fast-aging society and the government is encouraging people to use a tax shelter and secure some retirement funds by investing in stock markets.
Kishida has been more cautious about mentioning the idea of raising the 20% capital gains tax as a source of financing programs to support lower income earners after the markets reacted negatively last year.
Contact this reporter: max@macenews.com
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