Japan’s Leadership Rivals Diverge on Economic Paths After Covid

The three declared candidates vying to become Japan’s next leader offer an economic choice between a renewed drive to stoke inflation, a bid to rebuild the middle class, or an acceleration of digital reform that puts growth before price targets.
Not surprisingly, with an election looming, Sanae Takaichi, Fumio Kishida and Taro Kono have each promised to put together stimulus packages to help regain recovery momentum in an economy hit by the delta wave. 

Here’s a look at what each is proposing.

Abe Protege

Japan’s Leadership Rivals Diverge on Economic Paths After Covid

Takaichi, who is also looking to become Japan’s first female prime minister, has positioned herself as the candidate most prepared to ramp up the reflationary Abenomics policies of former premier and mentor Shinzo Abe. Japan hasn’t spent enough to hit 2% inflation, and should prioritize prices over balancing the nation’s books, she says. 

  • Stimulus package: needed immediately; no figure mentioned
  • Monetary policy: 2% inflation target comes before primary budget balance
  • Fiscal policy: be nimble in a crisis; more support needed to achieve price goal; extra bond issuance is fine
  • Sales tax: no change for now; consider refundable tax credits
  • Investment tax: raise
  • Nuclear power: necessary to achieve carbon neutral goal
  • Disaster resiliency: 100 trillion yen ($910 billion) needed over 10 years
  • Other key proposals:
    • swiftly consider a law to enable virus lockdowns
    • consider another cash handout

“Takaichi is seen as the biggest proponent of aggressive monetary easing among the leadership candidates given her ties with Abe’s pro-stimulus group and supporters of modern monetary theory,” says Yuki Masujima at Bloomberg Economics.

Wealth Spreader

Japan’s Leadership Rivals Diverge on Economic Paths After Covid

Ex-foreign minister Kishida, who lost a battle last year to keep pandemic cash handouts focused on individuals most in need, is looking to peel back some of the inequalities created by Abenomics and spread income more evenly. 

  • Fresh stimulus package: tens of trillions in yen needed immediately; bond issuance necessary
  • Monetary policy: retain bold easing and 2% inflation target
  • Fiscal policy: be nimble
  • Sales tax: no change for now
  • Investment tax: overhaul a lower tax rate for investment income over 100 million yen
  • Nuclear power: see it as a green energy option
  • Disaster resiliency: 15 trillion yen needed over 5 years
  • Other key proposals:
    • create a ministerial post for economic national security
    • launch a 10 trillion yen fund this fiscal year to enhance scientific research and nurture talent

“Back in 2018, Kishida said restoring fiscal health would stimulate consumer spending by alleviating concerns among households. It’s difficult to be convinced he’ll be more aggressive on fiscal policy after the Covid crisis ends,” said Masujima.

Reform Driver

Japan’s Leadership Rivals Diverge on Economic Paths After Covid

Vaccine czar and opinion poll leader Kono is closer to the policy track of outgoing Prime Minister Yoshihide Suga. He wants to accelerate administrative reform. Forging ahead with green and digital goals can transform the economy and provide employment across the country as indicated by the switch to telework during the pandemic, he says. 

  • Fresh stimulus package: has yet to give a size estimate; some bond issuance necessary
  • Monetary policy: wary of endless stimulus, says growth generates inflation, not the other way round
  • Fiscal policy: supports emergency spending, though it should support post-Covid growth
  • Sales tax: no change for now
  • Investment tax: consider raising
  • Nuclear power: should scrap eventually; backtracked to OK safety-guaranteed nuclear power plants
  • Disaster resiliency: aim for sustainable infrastructure against natural disasters
  • Other key proposals:
    • Build 5G network across the entire nation
    • Refocus economic policy on individuals over companies; firms should share more of profits with employees

“Kono is known among investors for urging the BOJ to talk about its exit strategy back in 2017 when inflation was running around 1%,” said Masujima.

©2021 Bloomberg L.P.

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