/

Fight over fiscal council to test Abe’s mettle

Kyodo

The revival of the Council on Economic and Fiscal Policy, which was all but nonexistent under the ousted Democratic Party of Japan government, sets the stage for Prime Minister Shinzo Abe to promote aggressive monetary easing and other policies to revive the economy.

But with government ministries bickering over who should take charge in policy-planning and running the council, Abe’s caliber as a leader is also likely to be tested.

“I would like you to take full advantage of your role as the control tower to map out a clear policy regarding important economic and fiscal issues,” the prime minister said in wrapping up the council’s Jan. 9 meeting, remarks indicating his high expectations.

The council, established in 2001, was put on ice after the DPJ took power in 2009.

Following his Liberal Democratic Party’s landslide victory in the Dec. 16 Lower House election, Abe not only announced his decision to resurrect the council, but also abolished the former government’s Council on National Strategy and Policy during his new Cabinet’s first meeting.

The latter, established under the DPJ administration, had no legal authority. The Council on Economic and Fiscal Policy, in contrast, holds a strong mandate that enables it to, for example, order government ministries to submit relevant documents when deemed necessary.

The fact that Bank of Japan Gov. Masaaki Shirakawa is an official member is believed to have been a factor encouraging Abe to resurrect the council, hoping to use the forum as an occasion to directly press the BOJ to adopt the kind of aggressive monetary easing he is advocating, experts said.

Indeed, at the Jan. 9 meeting, Abe cornered the BOJ and demanded that it clearly hammer out measures to strengthen cooperation with the government.

“I want you to coordinate and consider measures to build a framework to enhance collaboration between the government and the Bank of Japan,” Abe told council members.

The prime minister and his aides are aiming to replicate the kind of influence the council enjoyed during the administration of former Prime Minister Junichiro Koizumi, political analysts said.

The Koizumi-led council won praise for its achievements in fighting off resistance from the bureaucracy and within the LDP itself, to realize policies such as the privatization of postal services.

Abe’s attempt to use the council to pressure the BOJ into action, however, is not without its critics.

A senior official in one of the ministries involved in economic policies expressed concern that Abe’s demand that the central bank introduce a 2 percent inflation target could lead to “excessive inflation.”

Similarly, many in business circles share the strong view that Abe is turning a blind eye to the negative impact on businesses that higher borrowing rates would bring.

Meanwhile, with Taro Aso — who gives more weight to expansionary fiscal policy than to monetary easing — gaining influence in his capacity as both deputy prime minister and finance minister, some experts believe the hardline stance within the Abe administration and the ruling LDP toward the BOJ is gradually subsiding.

Ultimately, what the council will actually take up as its main subject for discussion remains unclear, experts said.

While the council is tasked with drawing up macroeconomic policies such as compiling the government budget, the Abe administration wants to have the newly launched Headquarters for Japan’s Economic Revitalization and its affiliated Industrial Competitiveness Council take charge of examining growth strategy.

Yet, many seem to find it difficult to distinguish between the Council on Economic and Fiscal Policy and the Headquarters for Japan’s Economic Revitalization. Even council members appear perplexed as to their exact roles.

“I don’t quite grasp the relationship (between the two),” said Rakuten Inc. Chairman and CEO Hiroshi Mikitakni, a member of the Industrial Competitiveness Council.

The tug of war between the Finance Ministry and the Ministry of Economy, Trade and Industry over leadership in the resurrected economic and fiscal policy council had in fact begun even before the December election, which brought the LDP back to office after three years in opposition.

Senior Finance Ministry officials, wary that the ministry could be stripped of its right to compile the government budget and that fiscal consolidation may be put on the back burner once the council was restarted, even approached senior LDP lawmakers prior to the election.

In an apparent attempt to fan the flames of concern, one officials was quoted as warning that it would be “dangerous” should the council get out of control.

The LDP’s initial plan had been to place the council, in practice, under the revitalization headquarters. It felt ill at ease with the existence of the council, which had in the past worked to put the brakes on annual expenditure increases, with the Finance Ministry working to this end behind the curtain.

As it turned out, the senior Cabinet Office post in charge of the council was filled by someone originating from METI for the first time in about 9½ years. The move, political experts said, reflects the Abe administration’s inclination to aim for economic growth rather than fiscal reconstruction.

Exactly where the council is headed appears likely to change according to the delicate dynamics between the two rival ministries, they added.

During Abe’s first stint as prime minister after succeeding Koizumi from 2006-2007, the council saw few notable achievements.

“Depending on how it is utilized, the council may become a tool that can demonstrate its ability to keep ministries from taking advantage. The prime minister must exercise his leadership,” a former council member from the private sector said, voicing his mixed feelings of expectation and concern over Abe’s approach.