TOKYO — It is highly unlikely that Shinzo Abe, the man behind Japan’s “Abenomics” policy, will be overthrown in the near future, but Prime Minister Fumio Kishida may eventually be able to gradually reduce Abe’s government spending and monetary stimulus.
Japan’s longest-serving prime minister was shot and killed on Friday while running for office in Sunday’s parliamentary elections, which saw his party’s coalition increase its majority in the upper house. This unusual act of political violence shocked the entire country.
According to analysts, Mr. Kishida is unlikely to take any immediate action that might enrage lawmakers who support Abe, who led the largest faction in Mr. Kishida’s Liberal Democratic Party (LDP) after he resigned as premier in 2020.
However, in the end, his absence and the LDP’s victory on Sunday—aided by Abe sympathizers—could give Mr. Kishida the political capital to alter his course of action.
Two days after Abe’s murder, Mr. Kishida’s LDP-led conservative coalition was expected to increase its upper house majority in the election.
According to those close to Mr. Kishida, the prime minister and his advisers want to gradually wind down the Abenomics experiment, which was started nearly ten years ago, and move toward normalizing fiscal and monetary policies.
Koya Miyamae, senior economist at SMBC Nikko Securities, predicted that Abenomics and ultra-loose monetary policy would not be quickly reversed.
But given issues like the weak yen, he added, “in the long run, the Bank of Japan must consider some form of tweak to its monetary policy.” That implies that current or former executives of the BOJ will continue to be strong candidates to lead the central bank.
Abe and his supporters continued to put pressure on Mr. Kishida, a member of a smaller LDP faction, to continue the country’s aggressive stimulus program and appoint a reflationist dove as the Bank of Japan’s governor in April.
Abe’s absence could alter the party’s power dynamics, reducing the influence of proponents of excessive government spending and ultra-loose monetary policy.
Daiju Aoki, chief Japan economist at UBS Sumi Trust Wealth Management, stated that Abe “led a group of reflationist-minded ruling party lawmakers favoring big spending, so his absence will have a huge impact on the party’s power balance.”
SHIFT FOR POWER BALANCE
Abe’s “three arrows” strategy—aggressive monetary easing, flexible fiscal policy, and a long-term growth plan—were implemented in 2013 with the backing of a sizable public support campaign to rescue Japan from a protracted period of deflation.
Haruhiko Kuroda, the governor of the BOJ, spearheaded the organization’s massive stimulus program, which raised stock prices and improved business sentiment while reversing the relentless yen rise that had harmed Japan’s exporters. However, economists criticized the absence of reforms to help the economy shift sustainably into a higher gear as well as a lack of a credible growth strategy.
Mr. Kishida has up until now remained committed to Abenomics, implementing sizable spending plans to lessen the economic blow caused by the COVID-19 pandemic and, more recently, to lessen the impact of skyrocketing energy and raw material costs.
He has also backed the BOJ’s ultra-low interest rate strategy, which has caused the yen to drop to levels not seen in two decades even as other central banks raise rates.
“It’s obvious that Abenomics has achieved great results when we consider Japan’s gross domestic product, corporate profits, and employment conditions. The current focus should be on increasing wages, Mr. Kishida said on Sunday during a television program.
Mr. Kishida might eventually try to scale back some of Mr. Kuroda’s radical monetary experiment, which has hurt financial institutions’ profits and hampered bond market pricing.
After strong opposition from Abe and his allies, Mr. Kishida’s administration was forced to soften Japan’s commitment to budgetary balance. The passing of Abe might allow Mr. Kishida to concentrate more on initiatives to reduce Japan’s government debt load, which is the highest in the industrial world.
“Abe was a leading advocate for fiscal expansion. The National Graduate Institute for Policy Studies professor Mikitaka Masuyama said that those people “lost their motivation.” Although I wouldn’t say Kishida has a rock-solid position within the party, he is now more likely than ever to have better control over it.
While the BOJ is unlikely to change its ultra-loose monetary policy anytime soon, Mr. Kishida’s choice of BOJ governor may be impacted by the diminishing power of lawmakers who support economic growth.
When Mr. Kuroda’s second five-year term is up, the prime minister will have the final say in who will succeed him. Abe personally selected Mr. Kuroda to use a monetary bazooka to end deflation.
Career central bankers Masayoshi Amamiya and Hiroshi Nakaso are regarded as strong candidates, with Mr. Amamiya being seen as taking a more dovish stance than Mr. Nakaso, who had previously expressed concern about the risks of prolonged monetary easing.
