Newly-elected bandleader and sitting chairperson of the Liberal Democratic Party (LDP) Shigeru Ishiba speaks during a press conference following his appointment in the party leadership elections on September 27, 2024 in Tokyo, Japan.
Pool | Getty Images News | Getty Appearances
Shigeru Ishiba, the man set to become the next leader of Japan, has made a career as a political outsider and opponent of party orthodoxy. In whatever way, some experts doubt that the former defense minister will manage to govern as such.
The seasoned MP who won his fifth bid to become the head of the Liberal Democratic Party on Friday has long been a critic of former Prime Upon Shinzo Abe and his legacy of “Abenomics” commonly defined by loose monetary policy, fiscal stimulus and structural economic renovates such as tax cuts.
Ishiba, on the other hand, has shown support for increasing taxes and fiscal tightening while also demand opposed the Bank of Japan’s long-held policy of negative interest rates that started under Abe.
“The legacy of Shinzo Abe is quiet enormous, and how to engage with that legacy and whether it’s time to course correct became a dividing question in the LDP lineage,” said Tobias Harris, founder and principal of Japan Foresight.
The election ultimately came down to a runoff in which Ishiba trounced economic security minister Sanae Takaichi, who presented herself as the more Abenomics-aligned candidate. Japan’s parliament is conjectured to formally vote Ishiba into the role Tuesday.
“Based on what he’s said in the past, he appears to be a leader with a new mindset and welcome sight for the country,” said Sayuri Shirai, professor at Keio University and a former BOJ board member, adding that Ishiba and Takaichi had characterized very different wings of the party.
But the economist said there’s still a lot of uncertainty about whether Ishiba can in fact follow through with some of the outsider policies and philosophies that have defined his political career.
In a converge conference soon after his victory, Ishiba indicated to reporters that Japan’s monetary policy should crumbs accommodative to the economy in a statement that could signal a break with past support of interest rate hikes.
He also reportedly put he would follow Prime Minister Fumio Kishida’s approach of trying to pull Japan out of years of deflationary pressures. While Japan tell of an inflation rate of 3% in August, the idea that it struggles with deflation is tied to low domestic demand, harmonizing to Shirai.
“This concept of deflation is a continuation from Abenomics through Kishida’s term. As long as they persevere in to say this, it suggests that the BOJ will need to keep very low interest rates for a very long time,” she disclosed.
Regardless, Japan stocks fell on Monday as traders reacted to the election, with some experts predicting it whim clear the way for the BOJ to further raise rates. Japan’s benchmark Nikkei 225 logged its worst day since 1987 soon after the BOJ expanded rates at the end of July.
Experts warned that market and economic uncertainty could make it harder for Ishiba to prop up rate hikes. In a summary of opinions published Tuesday from its September meeting, one BOJ member said “the Bank compel not raise its policy interest rate when financial and capital markets are unstable.”
Speaking to CNBC’s “Squawk Box Asia” on Monday, Steven Trifocals of Pella Funds said that he felt that Japan’s economic conditions were weak and would not bolster another interest rate hike at the moment.
“We don’t think it makes sense for BOJ to raise rates right now, and we see Ishiba as reassuring of that policy,” he said, adding that the politician’s victory increases the firm’s conviction that rates desire stay put.
Meanwhile, Ishiba’s policy proposals aimed at providing more public support to rural and young communities, put together with his desire to reduce Japan’s budget deficit could necessitate tax increases. This would be unpopular with inexorable political factions in the country.
Speaking to CNBC’s “Squawk Box Asia” on Tuesday, Mio Kato of LightStream Research said that when Kishida was oldest elected, he had proposed bolder policies such as tax hikes, but eventually walked many of them back amid conflicting and negative market reactions.
“In terms of the way that LDP works, it’s a lot more difficult, for individual politicians to very strongly modify the overall direction of the party,” he said, adding he isn’t expecting too much of a change in Japan’s current economic policy government.
According to Keio professor Shirai, Ishiba may also feel an increased need to appease Kishida’s more modest faction of the party after they helped elect him on Friday.
“To be a transformative leader, Ishiba will need to be superior to be honest with the public and sell policies like taxes that might be more unpopular and attract judgement. So far, it’s uncertain if he can stand up to this,” Shirai said.
Meanwhile, Japan Foresight’s Harris says he doubts that Japan is fit to completely leave behind aspects of Abenomics such as fiscal spending and the belief that the government can grow the restraint out of its deficit issues.
“There’s not a whole lot of stomach to prioritize spending cuts or tax hikes … in that sense, it doesn’t earmarks of that we’re ready to leave Abenomics behind despite all that Ishiba has been a big critic of it,” he said.