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Japan’s new prime minister and the long shadow of Abenomics

Fumio Kishida topped the leadership contest after garnering impressive support from party stalwarts such as Prime Minister Shinzo Abe and longtime Finance Minister Taro Aso from 2012–2020. He was of the view that the veteran party person represented stability and continuity compared to the popular but less conservative Taro Kono.

Yet when Kishida was confirmed as successor last week, Japan’s benchmark Topix index fell 2.1%, hitting a 30-year high soon after it was confirmed that outgoing Prime Minister Yoshihide Suga would resign. Were were

This reflects a degree of disappointment from investors that Kishida was elected ahead of Kono, who is very popular with younger voters.

Kishida’s job now is to prove that he is the right choice to pull the Japanese economy out of the short term. COVID-19 crisis and preparing it for the long-term challenges ahead.

still very excited

According to Shigeto Nagai, head of Japan Research at Oxford Economics, Kishida has no choice but to continue with the current economic policy in the country.

“On the fiscal policy front, as long as the economy is reeling from the pandemic, the government will never hesitate to provide further financial assistance when required,” he told DW. “Opposition parties have no reason to block liberal fiscal measures.”

Japan’s newly elected Prime Minister Fumio Kishida. (Reuters)

Unsurprisingly, Japan’s economy has been hit hard by the pandemic. The rise in COVID-19 cases and a slow vaccination rollout during the Tokyo Olympics mean the country’s economic recovery in 2021 has been much more sluggish than in other Western countries.

Last week, Japan finally ended a state of COVID-19 emergency that had been in place since April, allowing various businesses to fully reopen again. The government has spent more than 222 trillion yen ($2 trillion, €1.7 trillion) on various COVID-19 stimulus packages over the past 18 months and Kishida has already made clear that he believes another Is required.

“We should compile a stimulus package worth several tens of trillions of yen by the end of the year,” he said after winning the leadership battle last week.

‘Abenomics’ casts a long shadow

The big question for Kishida relates to fiscal stimulus in the long term and, in particular, his attitude towards so-called abenomics, the brand of policy associated with former prime minister Abe.

According to Nagai, Kishida made it clear during the leadership contest that he would stick to three core issues of Abenomics, namely: an aggressive monetary policy; a flexible fiscal policy; and a growth strategy that includes structural reforms.

Japan’s policy of massive fiscal stimulus has worked to a great extent over the past decade. The country has added nearly 5 million jobs since Abe took office in December 2012, while after nearly 20 years of morbid GDP figures, growth has turned more healthy. Corporate profits and share prices have also jumped.

Kishida, however, has emphasized the importance of fiscal discipline. Back in 2018, he said the Bank of Japan’s monetary easing policy “cannot last forever.”

They have also distanced themselves from some elements of abenomics, most notably the idea that a boom in corporate profits would ultimately benefit ordinary households. He has spoken outrageously of “neoliberalism” and a new style of Japanese capitalism.

“Without the distribution of wealth there will be no increase in consumption and demand… if the distribution of wealth is lost there will be no further growth,” he said during the campaign. “There is no doubt that Abenomics has made a great stride on growth, but in terms of distribution of wealth, the trickle-down has not happened yet.”

Various studies have shown that both poverty and inequality are increasing in Japan. But Nagai says that Kishida has yet to explain how he can reduce inequality. “Apart from indicating some amendments to taxation on financial income, no further concrete policy measures have been disclosed so far,” he said.

a range of other challenges

Kishida has many other long-term economic challenges that will require immediate attention.

Despite the country’s reputation as a leader in digital infrastructure, Japan has struggled to bring government services away from paperwork and offices and into the online world. According to a recent OECD survey, Japan ranks last in terms of providing digital services. The shortcomings were shown during the pandemic, when aid was slow to reach those in need due to bureaucracy.

Last month, the country finally launched a long-awaited “digital agency” that aims to accelerate the country’s digital transformation.

Kishida will also have to grapple with other major socio-economic questions. Japan has the world’s oldest population, which has put enormous pressure on the country’s taxpayers. There is also the serious problem of gender inequality. The World Economic Forum says Japan’s gender gap is “the largest among advanced economies”.

Then there is climate change and the green transition. Kishida’s predecessor, Suga, announced in his first address to parliament in September 2020 that Japan would achieve net-zero carbon emissions by 2050. He also later announced that Japan would cut emissions by 46% in 2030 from 2013 levels.

This in itself was a departure from Abe, who did not pay much attention to climate change. Kishida has talked about Japan’s need to support nuclear power as a clean energy source and invest in renewable energy. However, whether he will maintain Suga’s goals remains to be seen.

For now, he cannot afford to look ahead to the general election, which is due till November 28. Local media reported on Monday that elections could be held on October 31. He could feel quite excited if he clinches a sweeping victory to move on from the long shadow of Abenomics.

Politically it will never be easy, Nagai says, noting that his premiere is due to Abe’s sponsorship.

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