Japan’s Ishiba Faces First Major Policy Test With Stimulus
(Bloomberg) -- Japan’s Prime Minister Shigeru Ishiba laid out his latest policy vision Friday in a speech to an extraordinary session of parliament as he pursues approval of a ¥13.9 trillion ($92 billion) extra budget to fund a stimulus package.
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After early policy flip-flops and an uneven performance at international summit meetings in South America, Ishiba is now looking to deliver on pledges to boost the economy and help households struggling with rising costs of living, while also preparing for the incoming administration of US President-elect Donald Trump.
The prime minister renewed his pledge to push the nation’s economy toward a model where wage gains beat inflation and robust investment drives growth, a vision that echoes the goals of his predecessor Fumio Kishida.
“We’re seeing some encouraging signs already,” Ishiba said. “We need to shift the economy and businesses toward creating additional value, instead of cutting costs.”
Ishiba’s government remains vulnerable after it lost its majority in an election last month, but a deal with the opposition Democratic Party for the People over tax policy gives it some stability as lawmakers prepare to debate the plans in a parliament session that’s set to run through Dec. 21. The cabinet approved the extra budget on Friday.
While Ishiba’s public approval ratings remain weak, political analysts say he’s unlikely to face moves from within the ruling Liberal Democratic Party to replace him before the spring, when legislation for the budget for the fiscal year starting in April is expected to be approved. A challenge is seen more likely in the runup to an upper house election in the summer.
“The job of prime minister in a minority administration is a difficult and thankless one, and no one else in the LDP is likely to want it at this stage,” James Brady, a Japan analyst at Teneo, an advisory firm, wrote in a note to clients.
In his speech, Ishiba highlighted his priority of trying to foster economic growth in Japan’s rural areas, which have been hit hard by depopulation and economic stagnation. He promised a doubling of grants to the regions. The prime minister also touched on plans for handouts for those struggling with high prices of fuel and food, and bolstering Japan’s ability to cope with frequent natural disasters.
The new extra budget features ¥5.75 trillion in spending for growing Japan’s economy including its regions, ¥3.39 trillion in response to inflation, and ¥4.79 trillion for security and social policies.
While the handouts may be welcomed by some, the additional spending will simultaneously put pressure on Ishiba over the country’s growing mountain of debt. The size of Japan’s general government debt is now more than 250% of its economy, according to the International Monetary Fund.
In its recommendations to the government on Friday, Japan’s financial advisory board emphasized the need to normalize government spending ahead of next year’s budget.
“Achieving the primary balance surplus target by FY25 seems almost hopeless,” said Yasunari Ueno, Chief Market Economist at Mizuho Securities, referring to a long-held government target for fiscal discipline. “The next focus will be whether the government sets a new goal and what that goal will be.”
Beyond domestic goals, Ishiba was also keen to stress the geopolitical challenges Japan continues to face.
On foreign policy, Ishiba highlighted the importance of Japan’s alliance with the US ahead of the transition to a new administration in Washington, while also noting recent moves to dial back tensions with China through dialogue.
Ishiba held talks with Chinese President Xi Jinping on the sidelines of the recent Asia-Pacific Economic Cooperation Summit in Peru. The Japanese prime minister had also hoped to meet Trump on his way back from South America, but was told the president-elect was not planning to meet world leaders before his inauguration.
Ishiba faced some public criticism in Japan for not standing up to greet other leaders at APEC and for missing a group photo because he was caught in a traffic jam.
--With assistance from Yoshiaki Nohara and Akemi Terukina.
(Updates with economist comments, latest on extra budget.)
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