Newly elected Liberal Democratic Party President Fumio Kishida, who is on course to become the next prime minister, has pledged that he will shift Japan away from neoliberalism — the pillar of the country's economic policy for nearly two decades.
Pointing to widening income inequality, Kishida, who still needs to win the upcoming Lower House election to ensure he stays on as the country's leader, has set as his priorities the redistribution of wealth and boosting people’s wages so more people can join the middle class.
But with his predecessors — Shinzo Abe and Yoshihide Suga — having tried to get companies to raise wages without success, economists are skeptical, saying it is unclear how Kishida will finance and implement the kind of policies that would assist with that goal.
Whether it is issuing more government bonds, raising taxes on the rich or bolstering economic growth, “the bottom line is how he will manage to secure financial resources,” said Masamichi Adachi, chief Japan economist at UBS Securities.
During the LDP leadership race, Kishida ruled out a consumption tax hike for the next 10 years. He also said that, if necessary, Japan will push back its fiscal reconstruction target of achieving a primary balance surplus by fiscal 2025.
Details on Kishida’s economic approach, however, won’t likely be revealed until around next summer, when the government compiles its annual Basic Policy on Economic and Fiscal Management and Reform, Adachi said.
During a news conference Wednesday evening, Kishida said that even though Japan’s economy may have improved under Abenomics, the policy mix begun by Abe and continued by Suga, only the rich benefited from it.
“The fruits of growth are concentrated only among some people. Under such circumstances, we cannot establish a healthy economic cycle,” he said.
By distributing the wealth more broadly, Kishida aims to mitigate the disparities between the rich and poor, large corporations and smaller firms, as well as big urban cities and rural towns.
Kishida is worried that a wide gap may jeopardize democracy, pointing to the U.S. Capitol riot in January as an example of its consequences.
Calling for a pivot away from market-oriented neoliberalism, Kishida has said he will launch a new panel in charge of discussing and seeking a new model of capitalism for Japan.
As part of his policy platform, Kishida outlined a strategy dubbed “the Reiwa Era’s Income Doubling Plan,” a nod to the Income Doubling Plan promoted by Prime Minister Hayato Ikeda during the 1960s. Ikeda was the founder of the LDP faction Kishida currently heads.
Key to the having the general public feel that wealth is being redistributed is for wages to actually increase. But this is where Kishida will face challenges, economists said.
Under Abenomics, corporate earnings have hit record highs, but “wages haven't really increased, even though the government has persistently pressured” large companies, said Toru Suehiro, senior economist at Daiwa Securities.
“It won’t be easy,” Suehiro said.
Kishida has said he intends to raise the wages of those in the public sector, including teachers and nursing care workers, which would then put pressure on the private sector to follow suit.
In addition, he is proposing heavier taxes on those earning ¥100 million or more from financial investments.
Kishida is also aiming to strengthen economic security and he plans to set up a ministerial post to oversee related policies. As the pandemic has disrupted supply chains, Kishida has said he will encourage Japanese manufacturers producing essential goods to move their production bases back home.
As for mitigating the economic fallout of the pandemic, he has said his administration will draft a stimulus package worth tens of trillions of yen by this year’s end.
But all of these economic policies are based on the assumption that Kishida has the political capital to push them through. As such, a strong showing in the upcoming Lower House election as well the Upper House poll next summer is a must.
“It’s doubtful that Kishida can really promote such policies without thinking about how they would affect stock prices before the Upper House election,” said Suehiro of Daiwa Securities, adding that an aggressive policy on wage increases could hurt companies’ profits.
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