Japan’s new premier Kishida to sustain big fiscal, monetary support
By Leika Kihara
TOKYO (Reuters) – Japan’s struggle to emerge from the pandemic-induced doldrums will leave next prime minister Fumio Kishida with little choice but to maintain massive fiscal and monetary support for a fragile economy.
Some analysts believe Kishida will gradually get rid of the “Abenomics,” stimulus policies left by Shinzo Abe if he gains more power in forthcoming elections.
Kishida, who won Wednesday’s ruling Liberal Democratic Party leadership race with support from different factions, is unlikely to shake up the system by changing the current probusiness and reflationary policies implemented by Yoshihide Sauga, his successor, or Abe.
Kishida declared that Japan must prepare a year-end stimulus package with a value of several tens or trillions of yen. He said this in a speech shortly after the party race. It is clear that Japan will be slower than other advanced nations to reduce crisis-mode policy.
With the Party’s overwhelming majority in Parliament, Wednesday’s win assures Kishida that he will be elected next prime minister at a Diet session next week.
An analyst also believes that there will be little to no change in the Bank of Japan’s extremely loose policy, given Kishida’s comments about the importance of monetary stimulation to support growth.
Kishida’s long-term vision could be a positive one, particularly if the Bank of Japan has a strong mandate and wins both the lower house vote in this year’s election, as well as an upper house elections next year.
Kishida already criticized Abenomics and called for more attention to distributing wealth among households.
Abenomics was a strategy that Abe used in 2013, to stimulate growth and inflation using a mixture of expansionary fiscal policies and monetary policies. Share prices rose and corporate profits increased. As companies refused to increase wages, household wealth fell.
“If anything, Kishida’s policies will likely focus on income distribution compared to Abenomics,” said Masaaki Kanno, chief economist at Sony (NYSE:) Financial Holdings.
LESS BOJ PRESSURE
While Kishida has called on the BOJ to keep its policy ultra-loose for now as the economy tries to recover from the pandemic, he said back in 2018 the current monetary easing “cannot last forever” given the rising side-effects of prolonged stimulus.
Izuru Kato chief economist at Totan Research said that Kishida is aware of the detractors of drastic easing and may rely less heavily on monetary stimulation to boost growth.
As prime minister, Kishida will not want any sudden reversal in monetary easing. Kato indicated that Kishida won’t force the BOJ into increasing stimulus.
If Kishida remains in power for long enough to select a successor after Haruhiko Kuroda, the BOJ governor ends his term in 2023, Kishida may also have a strong impact on when stimulus is withdrawn.
Daiju Aoki (chief Japan economist, UBS Sumi Trust Wealth Management) said that a debate over the post-Kuroda framework for monetary policy may begin in 2022. This is around when the U.S. Federal Reserve might be considering interest rate rises.
He said that if this happens, both the BOJ and government may need to discuss an exit strategy for their ultra-loose policy.
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