Japan’s next prime minister says he believes increasing income is the only way to re-growth the world’s third-largest economy
Nearly a decade after longtime Prime Minister Shinzo Abe vowed to “make Japan great again”, Japan is in a holding pattern that is fueled by the pandemic and chronic problems such as an aging and shrinking population, rising inequality and stagnant incomes. Stopped by both.
Another big dose of government spending to help Japan recover from the shock of COVID-19 tops Kishida’s to-do list.
Kishida says he wanted to promote a “new capitalism” that would be more equitable, with a fair distribution of national wealth – the only way frugal Japanese families could afford more.
“Unless the fruits of development are properly distributed, a ‘virtuous cycle of growth and distribution’ cannot be felt,” he told reporters after being elected leader of the ruling Liberal Democratic Party on Wednesday. “I would like to take economic measures to increase the income of many of you.”
Despite his ambitious talk, Kishida is seen not as a reformer, but as an establishment substitute. He is a former banker and solid member of the political elite: his father and grandfather were also politicians.
Analysts say Kishida, who is set to be elected prime minister by parliament on Monday, is unlikely to stray away from Abe’s playbook of a heavy dose of encouragement. Nor is the current prime minister, Yoshihide Suga, who is stepping down after a year in office.
Kishida’s top priority? “Economy,” he told national broadcaster NHK.
He said he plans to propose a spending package of several hundred billion dollars soon.
Their support for housing and education subsidies should boost consumer spending, said Naoya Oshikubo, senior economist at the Sumi Trust. He expects a “tailwind for the stock market, as it will make clear that former Prime Minister Abe’s economic policies will continue.”
Under Kishida, the Bank of Japan is likely to stick to its years-long efforts to spur growth by pumping trillions of yen (hundreds of billions of dollars) into the economy through asset purchases, keeping interest rates close to zero.
The benchmark Nikkei 225 index fell 0.4% in morning trade on Thursday, as data weakened factory output and weak retail sales in August as the country battled the pandemic.
Share prices are near their highest level in three decades, but the asset is not reaching the average Japanese. Their income, adjusted for inflation, is falling. Meanwhile, jobs are growing less securely as companies rely on part-time and contract workers to keep costs down – the average minimum wage in Japan is only 930 yen ($8.30), compared to the cost of living in many Western countries. in more.
The number of households dependent on Japan’s meager welfare benefits has increased during the pandemic, and poverty has increased, particularly among families led by single mothers. What was labeled a “lost generation” during Japan’s long years of stagnation, says Waseda University professor Kenji Hashimoto, has become an “underclass” accounting for four out of 10 Japanese.
He and other experts believe that the post-World War II formula that made Japan an industrial powerhouse is out of date.
A soft-spoken pragmatist, Kishida has not elaborated his vision for the “new capitalism” and it is unclear whether he has a comprehensive strategy for dealing with the long-term problems that impede growth.
That means other party leaders, the central bank and the bureaucracy could have greater influence and prevent major changes such as labor reform, which economists say is hindering productivity improvements.
With nearly a third of the population already 65 or older, health care and pension costs are rising, and ordinary households are bearing an increasing share of the bill. Kishida says the sales tax, which is now 10%, shouldn’t be raised for nearly a decade so that demand doesn’t improve.
Corporations have an increasing share of wealth, are hoarding their earnings and paying less taxes: As of June 30, 2020, retained corporate income in Japan totaled about 460 trillion yen (about $4.2 million). trillion)
Poverty is usually hidden in affluent, settled Japan, and homelessness is not as prevalent or visible as it is in the US and some other countries. But the standard of living is falling and will continue to fall unless the value of work per capita increases as the population declines. Economists say that increasing productivity is also the key to increasing wages.
Despite the well-known prowess of manufacturers such as Toyota Motor Corp., Japan ranks 21st out of 36 countries in the Organization for Economic Cooperation and Development. Its hourly productivity in 2018 was less than $50, compared to about $75 an hour in the US and about $102 in Ireland.
Kishida has said little about the productivity problem, although he is getting a head start on an area of reform: what the Japanese call “digitization”.
The slow and clumsy handling of pandemic relief payments and vaccinations drove home the urgency to modernize Japan’s data sharing and public services. A new digital agency was launched on 1 September to lead a shift away from reliance on fax machines, handwritten documents and ink stamps, helping to streamline red tape.
Such changes are necessary, but will not fix the economy, Richard Katz, editor-in-chief of The Oriental Economist, said in a recent online briefing.
“There are a whole bunch of challenges,” he said. “They are solvable, but it requires a prime minister with the will to act, who has a strategy.”