With fresh mandate, Kishida set to have hands full in coming months

Fresh off a sweeping victory in Sunday’s Upper House election, Prime Minister Fumio Kishida will be looking to tick a number of boxes on a growing list of goals — including some that have proved elusive over his first nine months in office.

From a signature economic policy that he pushed early on in his administration and moves on Japan’s still-onerous COVID-19 border measures to a potentially unprecedented shift on defense, the prime minister will soon have his hands full, even with his fresh mandate.

But Friday's shocking assassination of former Prime Minister Shinzo Abe could have a lasting and dramatic impact on the Japanese political world, especially in regards to the country's defense policy.

Here’s a look at three key areas to watch in the coming months.

Kishida’s ‘new form of capitalism’

The victory in Sunday’s election is expected to place renewed focus on how Kishida will revive the economy by pushing his policies under what he has called a “new form of capitalism.”

Prior to the election, Kishida unveiled key parts of the agenda, which include investing in human resources, science and innovation; increasing the number of startups; and promoting green and digital transformations.

But the proposals lacked specifics, so Kishida will face the task of mapping out more details in his bid to convince the public.

His Cabinet will likely roll out a large-scale economic package in the fall to finance some of the new capitalism policies.

Kishida announced his new capitalism vision when he was running for the Liberal Democratic Party presidency last year and initially stressed the importance of the redistribution of wealth, saying that the fruit of growth under market-oriented neoliberal policies does not spread equally.

But as market reactions were tepid, Kishida has apparently shifted the policy to focus more on growth, saying that a “virtuous cycle of economic growth and distribution” is essential.

In an apparent effort to show his market-friendly side, Kishida has also proposed a plan to double asset-based incomes in an effort to drive momentum for investment among households, which tend to focus on saving. More than half of Japan’s ¥2 quadrillion ($15.39 trillion) in household assets remained in savings accounts as of March, according to the Bank of Japan.

Decarbonization is also a priority within the policy, with a proposal pushing for more cooperation between the public and private sectors and calling for ¥150 trillion in related investments over the next 10 years.

Another priority is boosting Japan’s economic security as heightening geopolitical tensions increasingly pose risks for the economy, highlighted by power shortages and supply chain snarls.

Some economists have said that individual policies under the new form of capitalism are not so new but it is a good sign that Kishida has shifted to emphasize growth, although they have added that Kishida needs to present more details.

While Kishida is expected to focus on his signature policies, he will also have to deal with more immediate issues — most notably rising inflation.

Inflation rates are still milder than in other countries, but Japan’s core consumer price index jumped for the ninth straight month through May year on year due to skyrocketing import costs stemming from soaring commodity prices and the rapid fall in the value of the yen against the U.S dollar.

Border controls to stay?

With the election out of the way, the hospitality sector is hoping Kishida will fully open Japan's borders to allow foreign tourists, rather than just those on package tours. Such tours are generally unpopular with Western tourists.

But at present, media reports are focused not on foreign tourists, but on when the government will expand a regional travel campaign, which is likely to be delayed to the latter half of this month at least amid a surge in COVID-19 cases across the country.

“As cases rise nationwide, hospital occupancy rates for (COVID-19 patients) are also increasing in major cities,” Deputy Chief Cabinet Secretary Seiji Kihara said on Thursday. “The government will decide by mid-July when the campaign will kick off” based on how the virus is spreading and how it is affecting the health care system.

On Saturday, 54,993 cases of COVID-19 were reported nationwide, up from 24,885 from the week before. Nationwide daily cases have been rising week-on-week since June 20, according to health ministry data.

With the domestic travel campaign kickoff slated to be pushed back, it’s unlikely that the borders will be eased for foreign tourists in the immediate future.

On June 10, the country started accepting foreign tourists for the first time since the start of the pandemic, but only those on guided tours. The guides are tasked with arranging treatment and identifying close contacts should a traveler test positive for COVID-19.

Experts have said the issue of whether to open the borders is highly political, and that Kishida is likely to have avoided the issue ahead of the election.

His predecessor, Yoshihide Suga, gave up running in the LDP presidential race in September last year, essentially stepping down as prime minister, as Japan was confronting the delta-driven wave in the summer while hosting the Tokyo Olympics and Paralympics.

After Japan went through another wave dominated by the omicron variant in January and February, it gradually started lifting border restrictions, first allowing foreign students, foreign academics, technical interns and business travelers to come in. It then gradually increased the daily arrival cap, which includes Japanese nationals and foreign residents, from 5,000 on March 1 to 20,000 at present. But businesses are urging the government to further increase the cap.

“At present, the current cap is 20,000, but we will consider what to do based on the (infection) situation,” tourism minister Tetsuo Saito said last Tuesday. “The government will decide properly on the daily arrival cap.”

A new defense strategy

On the security front, the comfortable margin of victory in the election by the ruling bloc is expected to give Kishida room to maneuver in a number of areas, including on some politically sensitive security issues that had been shelved until after the poll.

In the election, the LDP had made the unusual choice of putting defense and foreign policy at the center of its campaign strategy, a decision that came after Russia’s invasion of Ukraine in late February. That war has galvanized public opinion against Russia and raised concerns that a similar conflict could erupt in Asia — giving Kishida and the government the political latitude to pursue potentially dramatic shifts in defense policy.

Many of the changes will be part of Japan’s revised National Security Strategy, which presents medium- to long-term guidelines for the country’s defense and foreign policies. Kishida has promised to revise the NSS — the first update since it was introduced in 2013 — by the year’s end.

That update would also prompt changes to two other key documents: its National Defense Program Guidelines, which outline targets for the country’s defense buildup, and its Medium-Term Defense Program, which details buildup plans over the next five years. Both were last updated in December 2018.

One of the most closely watched aspects of the revised NSS will be whether Kishida’s government chooses to pursue a hotly debated defense spending figure of 2% of gross domestic product each year — 1% has long been an unspoken rule — within five years.

In April, the ruling party recommended such a move, which would effectively double the defense budget. An annual policy plan outlining the government’s fiscal vision and the LDP’s election platform, both released last month, did not explicitly set such a target, instead referencing NATO countries’ commitment to spending 2% of GDP on defense as a “consideration” for Japan.

The LDP has also recommended that a “counterstrike capability” be included in the NSS as a deterrent against North Korea’s increasingly advanced missiles and China’s growing arsenal of weapons.

Having a capability that can target both enemy bases and command posts, some lawmakers say, would give Japan more options for retaliating against mobile- and submarine-launched missiles and serve as a warning against possible attacks. It would also fulfill a key pledge to the United States to bolster Japan’s defenses and take a larger defense role in the alliance.

But Kishida could face opposition from critics of both higher defense outlays and the counterstrike capability. Opponents say including such policies would represent an overly dramatic shift from Japan’s exclusively defense-oriented security posture under its war-renouncing Constitution while intensifying a regional arms race and undermining stability in the Indo-Pacific.

And then there’s the funding issue, details of which have been scant.

Finding the money for such a massive spending hike will be a major challenge for Japan, which surpassed ¥1 quadrillion ($7.7 trillion) in long-term debt for the first time in fiscal 2021 — and a potential source of criticism for Kishida.

His government is already grappling with inflation, with households now feeling the pinch without strong wage growth, and voters could view boosted defense spending as a misplaced priority as their economic struggles grow.

But the assassination of Abe, an LDP kingmaker who led the party's largest faction, may also galvanize lawmakers who had backed his hawkish stances on defense as they seek to cement his legacy.

Abe had in recent months pushed the envelope on defense issues in pacifist Japan, variously suggesting that Japan consider a "nuclear weapons-sharing" program with the United States and calling a more than ¥6.5 trillion boost in defense spending an appropriate level amid concerns over China's growing assertiveness and North Korea's missile launches.