September 19, 2021

Asia

JAPAN: The next prime minister’s economic policy agenda is emerging

BY James Brady

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( 5 mins)
  • Taro Kono continues to lead in the polls as the Liberal Democratic Party (LDP) presidential race officially began on 17 September but the contest to become Japan’s next prime minister remains in flux, with factional unity breaking down and a fourth contender making a disruptive last-minute bid.
  • In terms of their economic agendas, all the candidates share broadly similar platforms and themes, with the new prime minister set to pursue further stimulus, more Abenomics and loose monetary policy, digital transformation, decarbonization, and higher defense spending.

Retired one-time party president Yohei Kono was reportedly calling in old political favors with LDP allies this week, to aide his son Taro’s campaign to achieve the prime ministerial office that he himself and his own father Ichiro both narrowly missed out on. Such personal ties are an essential factor in LDP leadership races, and the need to work the metaphorical room is perhaps greater than ever now because of the breakdown of unity within the 7 intra- party factions. All but Fumio Kishida’s eponymous group will have essentially a free vote in the 29 September poll, with junior parliamentarians seeming to break more for Kono and senior members for Kishida or Sanae Takaichi. The ruling LDP’s large majority means that their new party president will become prime minister in early October, and with the opposition fractured, the party is set to be returned to power yet again in the forthcoming general election, now expected in the first half of November.

Taro Kono continues to lead in the polls with a plurality of support among both local party members and the wider public, but the last-minute entrance into the race of former communications minister Seiko Noda may complicate things. Both Kono and Noda have been advocates of progressive social causes, with Kono this week speaking out in favor of same-sex marriage and the right of married women to have different surnames. Noda has yet to release detailed policy plans, but if she picks off more than a handful of progressives, it will narrow Kono’s path to victory. If no candidate secures 50% in the first round, in which LDP Diet members and prefectural party members each account for 383 votes, a second-round run-off will be held. Here, the 47 prefectural chapters will have only one vote each, which will increase the relative influence of party grandees like Shinzo Abe and likely boost the chances of right-leaning Kishida. Kono has secured the backing of grassroots favorites like Shigeru Ishiba and Shinjiro Koizumi and is hoping to secure enough of the prefectural vote to seal victory at the first time of asking.

The new PM’s economic policy agenda

Irrespective of which candidate triumphs, the likely economic policy trajectory of the next prime minister is already taking shape, with all candidates offering comparable platforms. As an early measure, the incoming prime minister will likely pass another supplementary budget in the fall to stimulate economic activity that has been tamped down by pandemic countermeasures. Beyond that, the medium-term economic framework looks set to continue to be based on the Abenomics approach in place since 2013, including a continuation of the Bank of Japan’s ultra-loose monetary policy in pursuit of the elusive 2% inflation target. In this area, Kono seeks a future debate on the primary budget balance issue, Kishida would aim for fiscal consolidation in the longer term, and Takaichi would postpone aspirations for a balanced primary budget by the mid-2020s. The 10% level of the consumption tax looks set to remain the same.

However, the next leader will likely implement several new policies to address economic inequality and help disadvantaged groups. Kono has spoken of creating a society where all citizens have the chance to succeed, those who lose out get a second change, and those who cannot compete are given firm support. Takaichi is floating an increase in tax on investment income and distributing cash handouts to households. Kishida also wants to review investment income taxation as part of his plan to create a “New Japanese Capitalism”, the outline of which has gained the approval of the main business federation Keidanren. Noda would put greater focus on women, children, seniors, and disabled people, and also favors direct cash transfers.

Climate change policy will surely remain high on the agenda, continuing the decarbonization focus of Yoshihide Suga. Here, Kono would permit the restart of certified-safe reactors for the rest of their operational life while aiming for a nuclear power phase-out and the greater promotion of renewable energy. Kishida would continue the LDP’s traditional support of the nuclear sector and also develop renewables, while Takaichi is a nuclear fan to her core and would additionally push for the construction of small modular reactors.

Likewise, digital transformation will also be to the fore. Kono sees digitalization and e-government as a means to realize his aim to “move Japan forward,” and would also push improved data sharing and deregulatory measures in the medical system and elsewhere. Kono and Kishida both promise to use digital technology to help revitalize rural areas. Kishida would establish a science and technology investment fund, while Takaichi wants to improve cybersecurity capabilities.

The next leader is also likely to increase defense spending above the 1% of GDP level, as many in the LDP become increasingly jittery about China’s activities in the region and North Korea’s missile tests. In the defense and foreign policy spheres, differences become more pronounced. The Georgetown- educated internationalist Kono advocates strategic autonomy for Japan with improved economic coordination and military cooperation with the United States. The formerly dovish Kishida is currently adopting a more hawkish posture featuring new hardware in an apparent attempt to win votes from the Abe wing of the party. The hardline nationalist Takaichi, meanwhile, would double military spending, with talk of strike missile capabilities andother new weapons.

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