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Whoever wins the ruling Liberal Democratic Party presidential race will likely be given the challenging task as prime minister of steering an economy throttled by the COVID-19 pandemic.

Although the candidates may all belong to the same party, their agendas suggest that the economy will take different paths depending on who wins the LDP race and that could mean more fiscal spending or a more moderate approach. 

Here's where the top candidates stand on how to boost the economy, including their notable differences when it comes to macroeconomic policy:

Sanae Takaichi

The former internal affairs minister has drawn attention with her ambitious fiscal policy, vowing to be more aggressive when it comes to fiscal spending and freeze the primary balance surplus goal, in which the government can fully cover its expenditures excluding debt-servicing costs with its own tax revenues, until reaching the Bank of Japan's elusive 2% inflation target.

“I will prioritize strategic fiscal spending,” Takaichi said during a news conference last week. She added that if the inflation rate starts showing a rapid uptick, she will control the amount of fiscal investment.

Coining her economic policy “New Abenomics” or “Sanaenomics,” a play on the agenda promoted by close ally and former Prime Minister Shinzo Abe, Takaichi said she will make “bold investments” in growth fields and crisis management.

Abenomics sought to boost the inflation rate to 2% through three primary mechanisms: the Bank of Japan’s ultra-loose monetary policy, fiscal spending and growth strategy.

However, Takaichi claims that the government didn’t spend enough because it was putting restraints on its fiscal power by setting a primary balance surplus target for fiscal 2025.

Government simulations in July revealed the target would be unachievable until fiscal 2027 even if the country’s economy were to grow steadily. The government has maintained the target in an apparent effort to express its commitment to improve the country's fiscal health, which is the worst among the Group of Seven industrialized nations.

Takaichi’s reflational economic policy is considerably different from that of rival candidates and will bring a bigger impact on the markets, said Masamichi Adachi, chief Japan economist at UBS Securities.

Fumio Kishida

Kishida’s stance on fiscal policy, meanwhile, seems quite different from that of Takaichi.

Kishida said his administration would draft a stimulus package worth some tens of trillions of yen to counter the economic fallout from the pandemic. However, the former foreign minister has suggested that he will maintain the primary balance target, noting fiscal health sustains the credit of the country.

Kishida’s key message in his economic agenda was to focus on the redistribution of wealth to narrow the gap between rich and poor, which has widened under Abenomics.

He has also vowed to seek a new model for Japan’s capitalism, calling for a shift from the deregulation and market-oriented policies associated with the neoliberal philosophy.

For the past two decades, Japan has taken a neoliberalism approach, which may have boosted its economy but also widened the wealth gap, Kishida said, calling for a new path to ensure a more equitable distribution of wealth. Thanks to Abenomics, Japanese companies saw increased profits but they have not been passed down to workers, he said.

“There are a good number of people who are critical of the Abenomics policy. They say so-called ‘trickle-down economics,’ in which the wealth of the rich will spread to everyone, did not work,” said Adachi of UBS Securities.

The shift away from neoliberalism to redistribution of income is a recent global trend, so it is natural that Kishida has made such proposals, Adachi added.

However, if Kishida wants support from Abe, the de facto leader of the party’s largest faction, and people close to him, it is doubtful he can really pursue policies that would highlight flaws of Abenomics, Adachi noted.

Taro Kono

Since he threw his hat in the ring, vaccine chief Kono, the public’s favorite in recent polls, has discussed topics ranging from his current administrative reform portfolio to energy and imperial succession. But it's with his economic policy, or lack thereof, where he has clearly stood out.

Because of his popularity with the public, Kono has a good chance of winning the race to replace Prime Minister Yoshihide Suga. But unlike Takaichi and Kishida, “Kono has not drafted concrete (economic) policies at this point. This is concerning,” said Shunsuke Kobayashi, chief economist at Mizuho Securities Co.

Kono has proven to be a politician who can get the job done. As administrative reform minister, he launched a crusade on the use of hanko (personal seals) in a bid to simplify administrative processes as the government pursues digital transformation. Kono also accelerated Japan’s vaccination drive, achieving Suga’s goal of 1 million shots per day.

But Kono does not seem to be particularly interested in managing the economy with a clear vision or concrete agenda, Kobayashi said.

If he wins the LDP race without laying out his economic policy, the new administration may effectively be giving a free hand to the Finance Ministry and the Bank of Japan.

“In that case, the Finance Ministry will prioritize fiscal reconstruction and the BOJ will proceed with its stealth tapering” in an attempt to normalize its ultraloose monetary policy, Kobayashi said.

Kono is known for his stance against nuclear energy, but he has toned that down since the start of the campaign, saying Japan will need to rely on nuclear energy for the time being to meet the goal of carbon neutrality by 2050.

Making her decision at the last minute, Seiko Noda, deputy secretary-general of the LDP, said Thursday that she is joining the race. Noda told reporters that she will introduce her policies in a series of debates with other candidates starting Friday.

While each candidate has his or her own economic agenda, the top priority for whoever becomes LDP president, and later prime minister, is undoubtedly going to be measures against the COVID-19 pandemic and resuscitating the beleaguered economy.

After all, Suga was more or less forced to resign after his popularity sank due to growing frustration among the public over his handling of the pandemic.

“(The next leader) needs to keep that in mind; otherwise, the next administration might also end up being short-lived,” Kobayashi said.

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