New Japanese Prime Minister Kishida to Maintain Strong Fiscal and Monetary Support


[ad_1]

By Leika Kihara

TOKYO (Reuters) – Japan’s struggle to emerge from the pandemic-induced doldrums will leave the next Prime Minister Fumio Kishida with no choice but to maintain massive fiscal and monetary support for a fragile economy.

But Kishida could gradually shed the legacy of former Prime Minister Shinzo Abe’s “Abenomics” stimulus policies if he strengthens his grip on power by winning the general election due in November, some analysts say.

After winning a leadership race for the ruling Liberal Democratic Party (PLD) on Wednesday with support from various factions, Kishida is unlikely to rock the boat by anytime soon overhauling the pro-business reflationary policies undertaken by Abe and his team. successor Yoshihide Suga.

“We must compile by the end of the year a stimulus package in the amount of tens of trillions of yen,” Kishida said in a speech after the party vote, signaling that Japan will be at the lag of other advanced countries in reducing crisis policies.

Wednesday’s victory ensures that Kishida will be elected as the next prime minister at a Diet session to be convened next week, given the party’s majority in the lower house.

Analysts also expect little change in the Bank of Japan’s ultra-flexible policy given recent comments from Kishida stressing the need to support growth with massive monetary stimulus.

In the long term, however, Kishida could make some changes, especially if he gets a solid mandate by winning a lower house vote this year and an upper house election next year.

Kishida has already distanced himself from the Abenomics by calling for more focus on distributing wealth to households.

Under Abenomics – a strategy Abe rolled out in 2013 to boost growth and inflation with a mix of expansionary fiscal and monetary policies – stock prices and corporate earnings exploded. But household wealth has declined as businesses are reluctant to raise wages.

“We cannot achieve strong growth if wealth is concentrated in the hands of a small group of people,” Kishida said at a press conference, calling for the need to create a “virtuous cycle” of growth and distribution of wealth.

“We need to close the income gap between large and small businesses, high and middle to low income households, as well as between big cities and regional areas,” he said.

Among the ways to close the wealth gap would be tax reforms, as well as housing and education support for middle-income households, Kishida said.

LESS BOJ PRESSURE

While Kishida called on the BOJ to keep its policy ultra-flexible for now as the economy tries to recover from the pandemic, he said in 2018 that monetary easing “cannot last forever” given the increasing side effects of prolonged recovery.

Kishida’s realization of the downsides of sweeping easing could mean he will rely less on monetary stimulus to spur growth, said Izuru Kato, chief economist at Totan Research.

“As prime minister, Kishida will not want a sharp reversal of monetary easing. But he will also not exert explicit pressure on the BOJ to step up stimulus measures,” Kato said.

Kishida could also have a strong influence on how quickly the central bank withdraws stimulus measures, if he stays in power long enough to choose a successor when the term of BOJ governor Haruhiko Kuroda ends in 2023.

“A debate over a post-Kuroda monetary policy framework could emerge in late 2022, around the time the US Federal Reserve could deliberate on interest rate hikes,” said Daiju Aoki, chief economist in Japan at UBS Sumi Trust Wealth Management.

“If this is the case, the government and the BOJ could be faced with the need to present their views on an exit strategy from an ultra-accommodative monetary policy,” he said.

(Reporting by Leika Kihara; Additional reporting by Tetsushi Kajimoto, Daniel Leussink and Kantaro Komiya; Editing by Ana Nicolaci da Costa)

[ad_2]

About Emilie Brandow

Check Also

Trigon Terminals Set to Nearly Double Terminal Capacity and Advance Green Diversification with New Federal Funding

PRINCE RUPERT, BC, November 16, 2022 /CNW/ – Prince Rupert Trigon Pacific Terminals Limited (Trigon) …

Leave a Reply

Your email address will not be published.