On October 14, new Japanese Prime Minister Kishida Fumio dissolved the House of Representatives to make way for a general election to be held on October 31. Heading into the national election, the majority of the Japanese public is concerned with the economic policy of the Kishida administration. What is the nature and prospect of Kishida’s economic policy, or “Kishidanomics”?
On October 8, Kishida delivered his general policy speech in the Diet, expressing his determination to tackle the coronavirus pandemic by establishing a “new Japanese capitalism.” Based on a “virtuous circle of growth and distribution” of wealth, this new economic policy is supposed to replace the much-lamented neoliberal approach, which is said to have contributed to growing economic inequity among the Japanese society.
Kishida is set to prepare a considerably higher budget as the main measure against the COVID-19 pandemic. Longer-term, he will seek to carry out thorough income redistribution to rectify income disparities, while also aiming to put an end to the prolonged deflation in the Japanese economy. To the latter end, the Kishida administration plans to stick with the key drivers of Abenomics – monetary policy, fiscal policy, and growth strategy – implemented by former Prime Minister Abe Shinzo, and to target a 2 percent inflation rate in conjunction with the Bank of Japan. Most notably, however, Kishida advocated a modern version of former Prime Minister Ikeda Hayato’s 1961 “income doubling plan.”
Dubbed Kishidanomics, the new prime minister’s ambitious plans have already led a number of Japanese economists to highlight the limitations of the economic reshuffling. Sato Motohiro, a professor of economics at Hitotsubashi University, points out that the plan currently lacks sufficient details about how the new administration will obtain the revenue required for the redistribution of wealth to be feasible, unlike Abenomics’ so-called trickle-down effect. Kaya Keiichi, a columnist of Newsweek, similarly argues that Kishidanomics is elusive and, in effect, not that different from Abenomics. To cite one specific example, Kishida promised to reinvigorate Japan’s pension system by encouraging part-time workers to join the system. Yet Kaya contends that even if all part-time workers were to pay pension fees, it would not be sufficient to support the expansion of the system in the long run.
Indeed, the economic and finance policies under the Kishida administration could be similar to those already seen under the Abe and Suga governments. Suzuki Shunichi, the minister of finance, pledged that he would stick to bold monetary easing, flexible fiscal spending, and a growth strategy, all of which had already been facilitated by Abenomics. Yamagiwa Daishiro, the minister in charge of economic revitalization, stated that the government would take all necessary measures to “revitalize the economy.” Additionally, Kishida himself vowed to pass a stimulus package of “tens of trillions of yen.” In fact, the reason Kishida needed to set the election date earlier than planned was because his administration wants to focus on the preparation of the budget after the general election.
Hagiuda Koichi, the minister of economy, trade and industry, stated that it is somewhat “unrealistic” to achieve the income doubling plan in the Reiwa era, although he promised to strive for the redistribution of wealth of Japanese people and companies. Likewise, Kumano Hideo, a chief economist of the Economic Research Department at Dai-ichi Life Research Institute, argues that it is virtually impossible to attain the goal of the Reiwa version of the income doubling plan. In 2020, average annual salary for workers in the private sector was some 4,330,000 yen. In order to double this figure, it would be necessary to increase the annual salary by 5 percent for 15 years, or 7 percent for 11 years in a row. Kumano contends that this goal seems to be unattainable, given the fact that average annual income in the private sector was about 4,130,000 yen in 2013. Thus, the feasibility of Kishida’s income doubling plan is unclear at this stage. Still, the policy goal would increase the annual income of the Japanese workers to a certain extent, and eventually revitalize the Japanese economy beleaguered by the pandemic.
Meanwhile, Kishida’s economic security ambitions are likely to have a profound effect on Japan’s national security positioning. Notably, Kishida established a new ministerial post meant to enact new legislation promoting the nation’s economic security. Kobayashi Takayuki, a 46-year-old LDP lawmaker and a former parliamentary vice minister for defense, will be tasked to “craft a national strategy” to tackle the issue of “intellectual property theft and cyber espionage” which has become a major source of concern for Tokyo.
With Sino-American tensions persisting and a conflict in the Taiwan Strait not entirely unimaginable, Kishida appears hard-pressed to swiftly resolve Japan’s economic dilemma. In the event of an actual geopolitical confrontation near the Japanese islands, Tokyo’s economic survival will be as much at stake as its national security. Being a major import nation, Japan’s economy relies on unhindered transit through the water ways surrounding Taiwan and the South China Sea, both of which could become major flashpoints. Additionally, Japan’s economy has been hamstrung for decades, which would further compound the devastating economic consequences an all-out attack or blockade of Taiwan and surrounding waters would have.
Known to be a policy moderate and “consensus-builder” within the LDP, Kishida will thus have to face tough choices when it comes to making necessary economic headway and avoiding unnecessary diplomatic rifts. On the one hand, Kobayashi’s appointment as the nation’s first minister for economic security signals a clear break from former Prime Minister Abe, in that it establishes a new policy outlet that specifically combines the fields of economics and national defense. With close connections to the United States and a strong defense background, Kobayashi is likely to take a tough stance on Beijing. This will be highly welcome in Washington, which has long pushed for Tokyo to be more active and critical of China. While stepping up on China will also cater to the more conservative factions within the LDP and possibly bolster Kishida’s popularity, it will also be a highly welcome move in Taiwan, whose relations with Japan have seen an uplift in recent months.
On the other hand, allowing a heavy-handed ministerial outlet to tackle Japan’s economic downturn will likely be met with suspicion, given its unclear political agenda. In a phone call with Chinese leader Xi Jinping, Kishida already slightly backpedaled away from taking a clear stance on Beijing’s assertiveness. Kishida reaffirmed that he aims for “constructive and stable” relations with Japan’s East Asian neighbor, a stance that Xi underscored with a call for “dialogue and cooperation.” The hawkish state-run tabloid, the Global Times, in a fiery article, already called out Tokyo’s alleged “muddled rhetoric” and accused the new Japanese administration of hypocrisy.
If Kishidanomics is to bear fruit in such a climate guided by a strong anti-China rhetoric, the new administration will need be mindful of not accidentally shutting too many doors. It is therefore plausible that the lack of detail about how the new administration plans to fund its wealth distribution may be indicative of an underlying desire not to anger Beijing from the get-go. On the other hand, not being able to communicate clearly what its aims and ambitions are could upset Kishidanomics before it has a chance to be officially implemented.
As the country gears up for the coming general election, Japan’s top finance bureaucrat, Yano Koji, warned that Japan’s fiscal situation is “like the Titanic hurtling head-on toward an iceberg,” criticizing the current policy debate on the election as “pork barrels.” Whether Kishidanomics is destined to be successful or not depends on the political will of the Japanese people and the result of the general election to be held at the end of this month.
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