By Max Sato
(MaceNews) – Japan’s new Prime Minister Fumio Kishida is facing the same tough economic and social challenges that his predecessors tackled or created, leaving him no choice but to draw up longer-term plans to embark on a fundamental change.
The soft-spoken former foreign minister, who leads the conservative Liberal Democratic Party, has pledged to seek national unity and address income inequality by “listening to people” since winning the ruling party leadership race last week and officially elected Prime Minister in parliament Monday.
Kishida said he will put together plans to redistribute wealth, telling a news conference late on Monday, “No further growth without distribution. We will bring about a positive cycle of growth and distribution.”
New Capitalism
He said what he calls a “new capitalism” could not be realized overnight, stressing the need for a “medium- to long-term” approach.
Although the ruling coalition holds a majority in both chambers of parliament, it is uncertain how the LDP and its small partner Komeito will fare in the upcoming general election for the House of Representatives, which the Prime Minister called Monday for an Oct. 31 vote.
For the most part, Kishida is inheriting the policy tool boxes prepared by Yoshihide Suga, who stepped down last week amid falling public support after about a year in office, and Shinzo Abe, who led the LDP back to power in late 2012 by pledging to “revitalize” the Japanese economy with aggressive monetary easing, flexible fiscal spending and growth strategies.
Ahead of the general election, Kishida is calling for a “shift from policies based on neoliberalism that have lasted since the Koizumi administration,” referring to market-oriented reforms that have been criticized for creating income inequality.
Junichiro Koizumi, an LDP prime minister from 2001 to 2006, pushed for the privatization of the postal savings system through which the government was channeling massive funds to finance public projects outside of the official budget.
Under the slogan “No reform, no growth,” Koizumi also sought to boost Japan’s banking system by forcing lenders to slash non-performing loans.
Koizumi brought Heizo Takenaka, an economics professor, into his cabinet to accelerate his reform agenda. The two men were later blamed by critics of neoliberalism for opening 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.
Updating Abenomics Approach
The reflationary experiment by Shinzo Abe, who returned to premiership for nearly an eight-year stint until September 2020, might have benefited people with extra money to invest in stock markets or big businesses receiving tax cuts, but the trickle-down effect never came through and the middle class disappeared (Abe denied he had formally aimed at the trickle-down effect and called his approach bottom-up).
Massive cash injections into the financial system by the Bank of Japan, which was launched in April 2013, initially lifted inflation toward the bank’s 2% inflation target but the long-lasting drag from the sales tax hike to 8% from 5% in April 2014 and the dampening impact of a crude oil price plunge in 2015 depressed prices again.
Japanese leaders urged companies to raise wages, instead of hoarding cash for rainy days, but business leaders argued that the outlook remained uncertain and labor unions sought job security and better working conditions over wage hikes.
Kishida wishes to turn things around. The blueblood politician says the structural reform so far has widened the gap between the rich and poor and caused a division, which he said has worsened during the pandemic.
Abe was criticized by opposition party lawmakers and liberal-minded voters that his “us against them” remarks with a nationalistic political view divided the nation, and that he has failed to stop hate speech.
When Suga was Abe’s Chief Cabinet Secretary, he cracked down news media critical of the government, just as his boss did, and ruled bureaucrats with an iron fist.
Soon after Suga took over from Abe last year, his popularly began to slide when he suggested that people should help themselves and community members look after one another before seeking government support. His cabinet approval ratings continued falling as the government failed to stop the spread of the pandemic.
Kishida Policy Menu
Kishida may be able to show more empathy toward people in need but his policy must show desired results and he has to work together with different voices within the ruling party and in parliament.
The government has been raising minimum wages in recent years, calling for “equal pay for equal work” and requiring employers to pay benefits to non-regular workers whose working hours reach a certain level. But people still fall through the poverty line and many are either reluctant to seek welfare or have been told to work harder before applying for welfare coverage.
As part of Kishida’s economic measures is a large-scale government investment in the research and development of advanced technology, an oft-discussed area in which Japan needs improvement for sustainable economic growth.
He also plans to push for the digitalization of a country, which contrary to its high-tech image is still analogue when it comes to official paperwork and financial payments. Suga has got the ball rolling by launching the Digital Agency last month, and Kishida plans to use digital networks to revitalize rural economies.
When Kishida appointed cabinet ministers, he created a new post for “economic security,” another key policy-setting move, which is designed to counter alleged technology theft by China and deal with constrained supply chain networks.
BOJ Stance Seen Unchanged
While not completely denying Abe’s reflationary policy mix, Kishida hasn’t specifically referred to the Bank of Japan’s monetary policy stance, which means BOJ policymakers will maintain their highly stimulative policy stance for a few more years to guide inflation toward the bank’s 2% target.
Even if the LDP loses to the opposition camp led by the Constitutional Democratic Party in the general election later this month, the 2% inflation target is unlikely to be lowered or replaced by a range of inflation rates, such as from 1% to 3%.
BOJ officials have explained that Japan needs a safety margin to keep its inflation rate well above zero so that it won’t slip back into deflation. They also point out that if the BOJ lowers its inflation target while other major central banks maintain what is considered a global standard of about 2%, it could trigger a sharp appreciation of the yen on credit tightening expectations and hurt exports and overall economic growth.
Modest Start in Polls
Kishida’s government made a modest start with its approval ratings lower than when Suga took over from Abe in September 2020, according to Oct. 4-5 opinion polls by national newspapers. New cabinets tend to receive relatively high ratings as voters hope for a change for the better during a honeymoon period.
People generally regard Kishida as a safe choice by conservative lawmakers who do not wish to see their leader upset the apple cart and want him to keep a delicate balance in the LDP’s factional politics, according to news reports and social media posts.
Opposition leaders said the Kishida government is under heavy influence from Abe and former Prime Minister Taro Aso, an LDP heavyweight who served as deputy prime minister and finance minister from 2012 until a few days ago.
A poll conducted by the Mainichi Shimbun showed 49% of respondents supported the Kishida cabinet, compared to 64% at the start of the Suga administration, while 40% said they didn’t support the new cabinet.
If LDP leaders want to take a look at the brighter side, Kishida’s number is still higher than the 37% approval rating for Suga’s cabinet in Mainichi’s previous poll on Sept. 18.
A survey by the left-leaning Asahi Shimbun indicated an even lower 45% approval rating (vs. 65% for Suga’s about a year ago) while 20% of respondents said they didn’t support Kishida’s cabinet. The conservative daily Yomiuri Shimbun’s own survey pointed to a 56% rating start for Kishida, compared to a high 74% for Suga in September last year.
Yet the LDP is still leading in opinion polls ahead of the general election.
The Asahi said 41% of respondents picked the center-right LDP for the proportional representation segment if the election were held now, while 13% chose the main opposition center-left Constitutional Democratic Party of Japan. The CDP originates from the Democratic Party of Japan (1998 to 2016), which was formed by lawmakers with various political views, some from the LDP and others from the Socialist Party among other smaller groups.
In financial markets, the honeymoon period for Kishida appears to be short-lived. It may not be fair to blame the “Kishida Shock” alone for the recent plunge in the Tokyo stock market as investors are also jittery about surging energy costs and signs of slower Chinese growth, but Kishida could have been more careful about hinting at raising the 20% capital gains tax as a source of financing programs to support lower income earners.
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Contact this reporter: max@macenews.com
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