With two successful national elections now under his belt, Prime Minister Fumio Kishida has what is being called a “golden three years” to focus on reviving the Japanese economy, with any election during that time being of his own prerogative.
This should enable him to tackle not only immediate issues, but also the kind of structural economic problems that require significant amounts of time and political capital.
“This is quite big,” said Keiji Kanda, a senior economist at the Daiwa Institute of Research. “Although the situation might change, the prime minister has obtained about three years to act freely.”
But despite this newfound freedom, there is uncertainty about exactly what it is that Kishida wants to do, as so far he has only set out his agenda using broad brushstrokes.
Some of his predecessors made their objectives loud and clear. Junichiro Koizumi spent a huge amount of political energy pushing for the privatization of the postal services, while Shinzo Abe wanted to end Japan’s decadeslong deflation through his namesake Abenomics policies. Yoshihide Suga was eager to lower monthly mobile phone fees.
Kishida has put a “new form of capitalism” at the heart of his economic agenda, citing the need to address growing inequality, but it remains unclear what specific policies the prime minister intends to focus on.
After scoring a huge victory in the Sunday’s Upper House election, in which his ruling Liberal Democratic Party alone secured more than a half of the 125 seats up for grabs, Kishida said on Monday that the Japanese economy is faced with challenges — namely the pandemic, inflation and the fallout from the Russia-Ukraine war. He added that the level of seriousness of each issue is usually only seen “once every few decades,” but they are happening simultaneously.
Therefore, “even though people talk about a so-called golden three years, I don’t see it that way at all,” Kishida said, pledging that he will push new capitalism policies to resuscitate the economy.
Prior to the election, Kishida unveiled key aspects of his new capitalism concept, including investing in human resources, science and innovation, increasing the number of startups and promoting green and digital transformations.
Those policy planks appear to be focused in the right direction, but what’s important is that the policies are properly fleshed out and that Kishida pours a significant amount of political energy into them, Kanda said.
However, “since the policy scope stretches across a wide range of areas, it is possible that the focus and energy will be diffused and the policies would not really move forward in the next three years after all," he added.
“On top of that, the policy proposal does not mention specific goals. The rhetoric may be there, but it’s uncertain what kinds of economic achievements will define the new form of capitalism,” Kanda said.
The policy proposal document and Kishida’s remarks indicate that the prime minister wants to boost investment in human resources.
The proposal states that the government plans to arrange a three-year package and spend about ¥400 billion ($3 billion) to support midcareer education, targeting about 1 million workers for retraining and the acquisition of new skills. This is intended to enable them to switch careers into business areas with high-growth potential, such as digital- and tech-related industries, to boost their income.
But economists say the ¥400 billion investment over three years is too small to lift Japan’s long-term growth potential to levels akin to those of the U.S. and Europe. Mizuho Research and Technologies, a Tokyo-based think tank, estimates that Japan’s public and private sectors must invest around ¥3.9 trillion annually.
Kishida’s commitment to economic reform has seemed questionable, with the prime minister apparently reluctant to take bold action and risk causing conflicts with other factions within the LDP or sparking controversy among the electorate ahead of the just finished Upper House election or last year’s Lower House poll.
In fact, Kishida himself has shifted his policy stance in relation to the new form of capitalism.
When he proposed the concept during the LDP presidential election campaign last September, which was effectively a race to choose the prime minister, he stressed the importance of the redistribution of wealth, claiming that the fruits of growth delivered under the market-oriented neoliberal policies promoted by his predecessors had not been spread equally.
Yet as market reaction was tepid — particularly to proposed changes to capital gains taxes — Kishida shifted his emphasis more on growth, saying that a “virtuous cycle of economic growth and distribution” is essential.
Due to this shift in stance, it’s not clear what Kishida actually wants to do under the new form of capitalism, said Shunsuke Kobayashi, chief economist at Mizuho Securities.
Initially, Kishida came up with the new capitalism concept and promise to focus on redistribution to differentiate himself from Suga, the then-prime minister, whose economic policies were rather neoliberal. Suga ended up not joining the race because he had lost support over his response to the pandemic.
“I’m not sure how passionate Kishida is about pursuing the new form of capitalism. After becoming prime minister, he has largely shifted his stance and it now seems not that different from the growth strategies under Abenomics,” Kobayashi said.
Kobayashi also noted a difference in Kishida’s leadership style compared with Suga and Abe, who both took a top-down approach, saying that Kishida seems to instead be adopting a group-leadership style that empowers other ministers and bureaucrats to manage policies.
In that sense, a reshuffling of Cabinet members and LDP executives that will reportedly take place in late August or early September will be an indication of where Kishida’s economic policy is headed.
How the death of Abe, who was gunned down last week while making a stump speech in the city of Nara, will impact personnel changes will likely be under the spotlight, as the former prime minister headed the LDP’s largest faction.
If Kishida gives posts to many members of his own faction, which is traditionally known for its liberal stance, and other groups closed to him, “his Cabinet will pursue a path of big government” that will embrace more redistributive policies, Kobayashi said.
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