‘Suganomics’: What can we expect?

‘Suganomics’: What can we expect?

Japan’s new Prime Minister Yoshihide Suga, who took up office on 16th September, faces the challenge of revitalizing an economy still reeling from the effects of COVID-19. There are indications that Suga will continue many elements of his predecessor Shinzo Abe’s ‘Abenomics’ policy. Nevertheless, his economic policies are likely to diverge from Abe’s in a few key areas, owing to the influence of the COVID-19 pandemic and Suga’s tenure as Minister for Internal Affairs and Communications.

The resignation of former Prime Minister Shinzo Abe on 28th August due to ill health signposted the end of an unprecedented period of political stability for Japan, occurring as it did in the midst of political and economic turmoil brought about by the COVID-19 pandemic. Among the contenders who vied to succeed him, the man who came out on top is Yoshihide Suga. Suga served as Minister for Internal Affairs and Communications during Abe’s first term from 2006-2007, and was Chief Cabinet Secretary during Abe’s second term from 2012 until his resignation this year.

At the start of his second term, former PM Abe introduced his ‘Abenomics’ economic program. This took the form of three ‘arrows’. The first arrow equates to a policy of monetary easing, aiming to increase the country’s inflation rate to a targeted 2%. The second arrow relates to a robust fiscal policy, aiming to boost the economy through investment in public works. Finally, the third arrow aims for a raft of reforms, from increasing the female labour participation rate to deregulation across many industries. Having taken up the top job, what statements has Suga made and what can we expect in the coming months?

Continuities

Given his long involvement in policymaking under Abe, it is not unreasonable to expect that Suga will continue many of his predecessor’s policies. This hypothesis is strengthened by the continuity between Abe’s last cabinet and Suga’s, where Minister of Finance Tarō Asō and Minister of Education, Culture, Sports, Science and Technology Kōichi Hagiuda, among others, retain their posts.

With regards to monetary policy, Suga’s discussion with Bank of Japan Governor Haruhiko Kuroda on 23rd September provides a clear indication of his intent to continue the Abenomics policy of monetary easing and strive for a 2% inflation rate. As part of monetary stimulus efforts under Abenomics, the BoJ purchased billions of dollars of government bonds in an effort to push down interest rates. Suga has strongly signalled his intent to continue supporting this policy, stating on 13th September that there was ‘no limit’ to the number of bonds the government was willing to issue in order to spur economic growth during the pandemic.

When it comes to fiscal policy, and taking into account Suga’s statement on 13th September that ‘what’s important now is to improve current [economic] conditions’, it is reasonable to expect that in the short term his fiscal policy will remain loose. In line with this, Suga is likely to push forward with the introduction of an economic stimulus package which Abe’s government was already reportedly putting together for autumn this year. Similarly, it is expected that Suga will introduce a third budget at some point before the end of this year in the hopes of putting an end to the pandemic in Japan and propping up the economy. However, in the longer term and after the pandemic has passed, it is probable that Suga will rein in spending and return to a more Abe-like fiscal policy. Abe, notably, was not a fiscal dove and sharply decreased Japan’s budget deficit during his tenure.

Japan budget deficit

Japanese government budget deficit in % (2010-2018)

Divergences

Notwithstanding the likely similarities between Abenomics and Suga’s economic policies, his career history and recent statements both provide hints as to some of his more original policy goals. Chances are good that Suga will push harder to promote immigration than his predecessor. In 2018, Suga helped spearhead an update to Japan’s visa system for foreign blue-collar workers to help sectors facing labour shortages, stating that he wanted Japan to be somewhere ‘where foreigners will want to work and live’. Indeed, Suga played a key role in overcoming resistance within the LDP to this scheme, demonstrating a genuine interest on his part in using immigration reform to address labour shortages and promote growth.

Another area of reform where Suga is likely to bring experience and his own drive is in relation to mobile phone tariffs. During his tenures both as Minister for Internal Affairs and Communications and Chief Cabinet Secretary, Suga made statements expressing the desire to cut rates, such as in August 2018 when he stated the government had room to cut bills by as much as 40%. He made similar comments in the run-up to the post-Abe leadership election, and indeed, after Suga’s victory was announced, stocks in Japan’s mobile Big Three (NTT Docomo, KDDI and SoftBank) dropped by 2.8%, 4.1% and 5% respectively, highlighting just how strong the expectation is that Suga will push ahead in this area.

A third area where Suga has a more vocal record than Abe is with regards to reform in the regional banking sector, where declining profitability has been exacerbated by the COVID-19 pandemic. With a background in rural Akita prefecture, Suga has a more personal understanding of the challenges and prerequisites for reviving Japan’s neglected areas and is expected to promote consolidation in the sector. Reinforcing this, he played a pivotal role in the passage of an antitrust exemption for regional banks that comes into force this November. In addition, Suga has connections with Kitao Yoshitaka, CEO of SBI Holdings, which has already made moves to support and invest in the country’s regional banks.

So, what can we expect?

Taken together, ‘Suganomics’ is likely to mean more of the same in most areas. However, we can expect Suga to act more boldly than his predecessor in pursuing reform in the areas of immigration, telecoms and support for Japan’s regional economies.

Categories: Asia Pacific, Economics

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