‘Kishida Shock’ Hits Japan Markets With Investors Wary of Redistribution Plans
‘Kishida Shock’ Hits Japan Markets With Investors Wary of Redistribution Plans
(Bloomberg) -- Japanese equities saw an inauspicious start to the administration of Prime Minister Fumio Kishida, as stocks tumbled with some pointing fingers at the new premier’s plans for wealth redistribution.
The hashtag “Kishida Shock” trended on Twitter, as the Nikkei 225 Stock Average was set to extend its losing streak to an eighth day, the longest such run since 2009. Kishida has backed the lifting of wages in a policy he has called a “new type of Japanese capitalism.” While he has yet to outline specific policies, he has indicated support for higher capital gains taxes.
“There is no new growth without redistribution,” Kishida said Monday at his inaugural press conference as prime minister. “If the fruits of growth are not redistributed, consumption and demand will not increase.”
Although Japan has had a lower income inequality gap than fellow Group of Seven members the U.K., and U.S., according to OECD data, decades of corporate cost cutting have created a ballooning underclass of temporary employees. Some 40% of Japan’s workforce now has part-time or contract jobs that pay on average a third less than what full-timers make.
Pressed for details, Kishida said he could favor tax incentives for companies that raised wages instead of just dividends. Kishida has also promised to rethink the taxation of investment income which leads to more favorable levels for high earners, termed the “100 million yen ($900,000) barrier.”
“It will be a negative for markets,” Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., said of Kishida’s redistribution plans. “It’s sure to meet strong opposition.”
Opinion polls released after market close Tuesday indicated lukewarm support among the public for the Kishida administration, a worrying sign for the ruling party with a general election set to take place in just over three weeks.
The Nikkei fell 1% as of the morning close on Wednesday, with global growth concerns and rising energy prices weighing on sentiment.
Growing Divide
Japanese companies raised dividends over the past decade under pressure from the administration of former Prime Minister Shinzo Abe, who sought to boost returns to shareholders. Abe was less successful in encouraging companies to boost wages.
That’s among the reasons Kishida has repeatedly said he wants to address income inequality that has been made worse by the pandemic. On Monday, he outlined a growth strategy with four pillars:
| Growth Strategy |
|---|
| 1. “Building a Nation of Science and Technology”: large investment into R&D of cutting-edge technologies |
| 2. “Digital Garden City”: encouraging growth of rural areas through digitalization |
| 3. “Economic Security”: Kishida has emphasized the need to prevent the outflow of Japanese technologies to other countries, naming a minister to this role for the first time |
| 4. “Eliminating Anxiety in the Age of 100-Year Lifespans”: reviewing social security and tax programs |
But the premier also laid out a four-step redistribution strategy:
| Redistribution Strategy |
|---|
| 1. “Redistributing to Workers”: Ensuring the “fruits of growth” are given to workers and subcontractors |
| 2. “Expanding the Middle Class”: Reviewing government redistribution to grow the incomes of the middle class |
| 3. “Reviewing Public Prices”: Kishida aims to raise wages of nurses, care workers and kindergarten teachers |
| 4. “Correcting the Issues of the Single-Year Budget”: Better long-term planning for national issues such as infrastructure |
“The key to the success of the new administration’s macro policies will be to prioritize economic growth over redistribution until the economy fully returns to normal,” wrote Toshihiro Nagahama, chief economist at the Dai-Ichi Life Research Institute, in a Monday report, advising Kishida “to be patient with tax hikes.”
Abe slashed corporate tax rates, but the country’s new trade minister Koichi Hagiuda, an Abe confidant, put distance between the former prime minister’s policies and the new government.
“We won’t be beholden to Abenomics,” Hagiuda told reporters. “We need to reconfigure our policies so that they not only benefit large corporations, but also small and medium-sized businesses as well.”
“While share prices have risen, there is a growing disconnect with the real economy,” he added.
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