On October 9, Prime Minister Ishiba Shigeru is expected to dissolve the House of Representatives (Japan’s lower house), calling a snap election to be held on October 27. As a newly elected president of the Liberal Democratic Party (LDP), Ishiba announced at a press conference on September 30 that “[i]t is important for the new administration to be judged by the people as soon as possible.”
It is strategically vital for the LDP and Komeito, as the ruling parties, to hold a general election immediately after the formation of a new Cabinet with a relatively high approval rate. If the ruling parties win the next lower house election with a stable majority in the Diet, the Ishiba administration would become a full-fledged Cabinet.
What are the key policies we can expect from the Ishiba administration, especially his economic policy?
On October 4, Ishiba delivered a general policy speech at the opening session of the Diet. In the speech, Ishiba mentioned the word “economy” (keizai) as many as 30 times, showing his strong will to revitalize the Japanese economy. For comparison, former Prime Minister Kishida Fumio referred to the term “economy” 22 times in his general policy speech on October 8, 2021. Kishida was passionate about and focused on economic policy, dubbed “Kishidanomics,” which was given a high priority in his administration.
Reportedly, Ishiba himself does not like the phrase “Ishibanomics,” but as he emphasized in the general policy speech, economic policy is one of the high priorities for his administration.
First, the Ishiba administration would adhere fundamentally to the economic policy of the Kishida administration, including breaking away from deflation while pursuing wage increases, investment expansion, and energy policy. Ishiba pledged to increase subsidies for regional revitalization, stating on September 27, “I will halt population declines in regional areas… I’ll protect local communities to further promote the areas.” In addition, Ishiba demanded to raise the national average minimum wage to 1,500 yen ($10.23) per hour by the end of the 2020s.
On October 1, Ishiba mentioned his economic policy goal, saying, “The Japanese economy is on the brink of beating deflation… We will conduct economic and fiscal management that places the highest priority on achieving this.” The new prime minister also promised that he would provide “help for households as prices rise.” Japan Business Federation (Keidanren) leader Tokura Masakazu praised Ishiba’s plans to focus on breaking away from the deflationary situation.
Still, it was reported that Ishiba stated that there was “room to raise” corporate taxes during the LDP presidential election. In his words, “There are still firms that can bear the tax burden. I would like them to bear it a little more.” Thus, Japanese business leaders might need to pay attention to implications of Ishiba’s remark on the tax hike after the national election.
Second, Ishibanomics is expected to manage the monetary policy, which could influence the currency rate eventually. Notably, Ishiba met Bank of Japan (BOJ) Governor Ueda Kazuo in the evening of October 2. It is unusual for the newly elected Japanese prime minister to have a conversation with the BOJ governor, and it has implications for Ishiba’s economic policy as well as the result of the general election.
Both Ishiba and Ueda agreed to cooperate with each other for a stable monetary policy. Although Ueda said that Ishiba did not make an explicit request on the interest rate, it is obvious that the prime minister intended to reconfirm that the BOJ would not plan to raise the interest rate for the time being. Indeed, the Ishiba administration would not seek any “early rate hike” as monetary policy is strategically significant for the prime minister especially prior to and during the national election.
Having said that, monetary policy will be affected by the changing global economy and the relationship with the United States, as well as the dollar-yen market rate. During the Kishida administration, the BOJ terminated its negative interest rate policy, shifting rates from -0.1 percent to 0.1 percent on March 19. Moreover, the BOJ decided on an additional interest rate hike, from 0.1 percent to 0.25 percent, on July 30. At that time, Ueda commented that “the policy rate is still very low even after a hike to 0.25 percent,” implying a further interest rate hike this year.
Meanwhile, currency traders are watching out for yen-selling “magma” after Ishiba became the prime minister. Currently, it is still uncertain whether Ishiba will seek continuous monetary easing or eventual monetary tightening, and it is necessary to keep an eye on this front until the end of the general election at least.
Third, Ishibanomics might entail tax system reform. Indeed, Ishiba was enthusiastic about a financial income tax hike at the beginning of the LDP presidential election, although he was forced to backtrack due to the strong opposition even within the party. More recently, Ishiba stated, “I have no intention whatsoever of raising taxes on those who have increased their income through the new NISA (Nippon Individual Savings Account)” as well as individual defined-contribution pension plans.
Under the current tax system in Japan, the tax burden on those who earn more than 100 million yen ($690,000) tends to sharply drop off, which is called the “100 million yen wall.” With regard to this contradictory situation, Ishiba said possible tax reforms are “not at all meant to be punitive… It’s about how to create a fair tax system.” He added that details on tax policy “should ultimately be decided based on discussion by experts.”
It can be inferred that Ishiba would attempt to rectify the unfair situation of the tax system rather than pursuing higher taxes on investment-based income. Despite Ishiba’s reversal on the financial income tax hike, however, Tokyo stocks fell 5 percent on September 30, immediately after Ishiba won the presidential election. The reaction in the stock market is dubbed the “Ishiba shock;” it might be a temporary phenomenon, but it’s a sign that investors are cautious about Ishiba’s real intentions, especially if he wins the next general election.
Finally, Ishibanomics might necessitate financial reform as well. Ishiba has proposed establishing an Asian version of the North Atlantic Treaty Organization (NATO), which caused negative feedback domestically and globally. In his general policy speech at the Diet on October 4, Ishiba did not mention the topic. An “Asian NATO” would require a larger defense budget, and the prime minister should explain how the administration plans to provide financial resources.
With regard to fiscal reform under the Ishiba administration, Fujii Satoshi, a professor at Kyoto University and a former special adviser to the Cabinet, argued that it is possible that Ishiba would seek to raise the consumption tax from 10 percent to 15 percent in the end.
Hence, the economic policy of the Ishiba administration has a number of uncertainties at this stage. Whether Ishibanomics is going to be successful and sustainable depends on the result of the general election to be held on October 27 and the will of the Japanese people.