By Leika Kihara

TOKYO (Reuters) – Japan’s widening wealth gap has emerged as a key issue in a ruling party leadership contest that will decide who becomes the next prime minister, with candidates forced to reassess the legacy of former premier Shinzo Abe’s “Abenomics” policies.

Abenomics is a blend of expansionary fiscal, monetary and growth strategies. However, the government survey earlier this year found that households have not been able to reap the benefits.

The Liberal Democratic Party’s frontrunners for the leadership, Taro Kono (vaccination minister) and Fumio Kirishida (ex-foreign minister), have promised to put more emphasis on increasing household wealth.

Kishida declared on Thursday that “what’s most important is to provide the benefits of economic growth for a larger population.” We must establish a virtual circle of growth and distribution.

With Japan’s extensive fiscal and monetary stimulus, the options for how this can be achieved are limited.

Kono advocates for rewarding firms that increase wages through a reduction in corporate tax. Kishida, on the other hand, wants Japan to grow its middle class by providing targeted payments to families with low incomes.

Due to the LDP’s majority in parliament, Japan’s next prime minster is guaranteed to be the LDP’s winner of the leadership vote. In a race of four, there are two other women candidates – Sanae Tachichi, 60, an ex-minister for internal affairs, and Seiko Nora, 61.

On Oct. 4, Parliament will meet to elect a replacement for Prime Minister Yoshihide Suga, who quit the post less than one year after he took over from Abe.

The government surveys are conducted only once in five years. They were released in February. These reports have drawn attention to inequality trends during Abe’s tenure.

Shigeto Nagai of Oxford Economics’ Japan Economics said that the survey showed “the shocking failure of Abenomics” to increase household wealth via asset price growth.

The survey is conducted every five year and shows that the average household wealth fell 3.5% in 2014 to 2019. Only 10% of the wealthiest households saw an increase.

The survey revealed that Japanese households were not able to benefit from the stock markets rally because of their traditional fear of risk. Their financial balances fell 8.1% over the five-year period from 2014.

Nagai stated that the Japanese premier must consider Abenomics’ failures and acknowledge the myth of aggressive monetary easing not solving all Japan’s problems.

Haruhikokuroda, Bank of Japan Governor said that Abenomics was to be defended and the reason behind slow consumption was due in large part to the pandemic.

Kuroda responded to a question about why there has not been a trickledown effect on households in Japan, saying that Japanese businesses protected workers unlike the United States or Europe.

He said that although wage growth was modest in Japan, it is not what has caused weak consumption. Consumption will increase as the pandemic recedes.”