September 10, 2021

Asia

JAPAN: Kono enters the race as government charts a path out of restrictions

BY Teneo

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( 5 mins)
  • Favorite Taro Kono has announced his LDP leadership candidacy running as a paternalistic conservative and has notably softened his opposition to nuclear power.
  • Fumio Kishida is adopting a more populist economic rhetoric, and low-polling hardliner Sanae Takaichi would double down on Abenomics, while raising the tax rate on financial asset income is also on the agenda.
  • Meanwhile, the government’s new pandemic exit roadmap aims to roll back restrictions by November, but risks to economic growth remain.

Kono’s announcement came on 10 September, one week before the campaign period officially begins. He is positioning himself as a paternalistic conservative whose recent experience as minister for administrative and regulatory reform and vaccine rollout would give him the edge in overcoming bureaucratic inertia and getting things done. He also moved quickly to allay one of the major concerns hanging over his candidacy by confirming that he would support the re-start of idled nuclear reactors that had been certified as safe. Kono has previously been known for his opposition to nuclear power, but without its greater utilization, Japan would struggle to fulfill ambitious decarbonization goals, which Kono also reaffirmed. The government’s new energy plan envisages nuclear power’s share of total output rising from around 5% today to 20-22% by 2030.

Already ahead in both party and public opinion polls, Kono’s chances rose further when he secured an endorsement of sorts from his own faction leader and party grandee Taro Aso. Octogenarian Aso had apparently held back because of concern that Kono would replace him as finance minister and deputy prime minister with someone younger, but the political winds are now favoring the 58-year-old former defense and foreign minister. Kono also became embroiled in a minor controversy this week for blocking a few of his 2.3 million followers on Twitter, where he is the country’s most-followed politician. His public communication skills are generally seen as a major strength in the race, along with his reputation for decisiveness. Conversely, critics label him a maverick who fails to build consensus, and the issue of policy implementation would be a potential risk with a Kono premiership going forward.

Elsewhere in the race, Kishida has continued with his populist rhetoric this week, but it is not clear how much of a departure his economic agenda would represent in practice. He has spoken grandly of exiting the neoliberal policy paradigm and addressing inequality. However, other elements of his agenda echo much of the Abe and Suga approaches, including the Abenomics framework, the 2% inflation goal, a science and technology investment fund, and promoting digitalization in regional cities. In addition, Kishida has promised to create an economic security strategy and a ministerial portfolio to advance it. This would mark a departure for a country that traditionally places trade imperatives above political considerations, and reflects growing concern in the ruling Liberal Democratic Party about China’s influence in the region.

At the back of the field is the hardline nationalist Sanae Takaichi. She proposes a doubling down on Abenomics to achieve the elusive 2% inflation target and would switch the focus of the so-called third arrow from structural reform to crisis management investment. Her economic agenda also includes freezing the goal for a primary balance surplus by 2025 and doubling military expenditure to 2% of GDP. Despite securing the backing of influential ex-PM Shinzo Abe, Takaichi generally has low levels of support within the party and the country, and even within Abe’s own Hosoda faction. Indeed, Abe loyalists appear perplexed by his endorsement, as many would feel obliged to vote along the faction line but see that a weak showing by Takaichi would also damage Abe’s future standing in the party.

The financial asset income tax, levied on income from stocks and other investments, is also receiving attention as a means to boost revenue and address inequality. Kishida talks of reviewing the rate while Takaichi proposes hiking it. The Abenomics asset boom exacerbated economic inequality, given that in Japan only around one in ten households owns stocks, compared to more than half in the United States.

Exiting restrictions

Meanwhile, in one of outgoing Prime Minister Yoshihide Suga’s last consequential acts, his government has outlined a roadmap towards exiting pandemic restrictions by November. In the short term, state of emergency measures in most prefectures have been extended again until 30 September. Still, assuming core metrics improve by October or November, the government will ease restrictions relating to alcohol sales, restaurant hours, and numbers of people at department stores and large-scale public events. It will also stop discouraging domestic travel and may soon lower the isolation period for international visitors. Suga anticipates vaccination rates will reach around 80% by fall, such that any further waves would have a lesser impact in terms of serious case numbers and health system capacity pressures. The reopening schedule will likely be maintained by whichever candidate wins the LDP leadership race.

However, despite planned reopening and the rising likelihood of a fresh stimulus package, downside risks to economic growth in the next two quarters remain moderate, given the greater threat posed by new variants, regional supply chain disruptions affecting output, and demand-side risks to exports if growth in China and elsewhere weakens.

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