Will fiscal consolidation be a priority for the new leader of the ruling party?

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Japan appears poised to put even less emphasis on fiscal consolidation under the new leader of the ruling Liberal Democratic Party when Prime Minister Yoshihide Suga’s successor forms a new government.

Most of the candidates in the September 29 party leadership race pledged large-scale economic measures ahead of the start of Friday’s campaign as they tried to deal with the coronavirus crisis and restore growth in the economy affected by the pandemic.

Photo taken from a helicopter showing Tokyo Tower (front C) and Tokyo Skytree (rear) lit on August 24, 2021 (Kyodo)

Each is proposing a bold economic agenda ahead of the general election due by November 28.

The winner will replace Suga, who announced his intention to step down earlier in the month as prime minister given the party controls the powerful lower house of parliament. The next leader will be tasked with ensuring Japan’s fiscal health, the worst among major developed countries.

At the end of March, the world’s third-largest economy was grappling with a public debt of over 1,200,000 billion yen (10,000 billion dollars), or more than 200% of its annual gross domestic product.

Among the top three candidates, former Communications Minister Sanae Takaichi seems more likely to be proactive on budget spending than former Foreign Minister Fumio Kishida and Immunization Minister Taro Kono, analysts said.

“The three candidates can distinguish themselves by launching their own fiscal policy and growth strategy, and Ms. Takaichi’s fiscal policy appears to be the most expansionary and (under which) it would be easy to increase budget deficits,” said Yoshimasa Maruyama, Chief Economist at SMBC Nikko. Securities.

Takaichi, who seeks to be the first female prime minister in Japan, said the government’s target of putting its primary balance in black by fiscal 2025 should be suspended until the Bank of Japan reaches its inflation target of 2%.

The primary balance (tax revenue minus expenditure other than debt service) is considered an important indicator of fiscal soundness.

According to the original budget for the current fiscal year through March 2022, Japan’s primary deficit has more than doubled to 20.3 trillion yen from the original plan amount of the previous year, due to a decreased tax revenue and increased spending in the context of the pandemic.


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Takaichi told a press conference last week that his economic plan is a reshaped version of former Prime Minister Shinzo Abe’s economic program, dubbed “Abenomics,” which consists of “three arrows” of monetary easing, nimble fiscal spending to deal with the pandemic and other possible emergencies and spur investment in crisis management and economic growth.

In what she calls “Sanaenomics”, Takaichi plans to spend around 100,000 billion yen over 10 years.

Kishida, a serious contender with the backing of seasoned lawmakers, said he would “firmly hold the banner of fiscal consolidation” but also pledged an economic package with “tens of billions of yen” to combat the fallout from the COVID-19 pandemic. He also offered financial support for child care, education and housing to support the middle class.

Kishida’s “new Japanese-style capitalism” is designed to reduce income disparities through the redistribution of wealth, after structural reforms promoted in the early 2000s under the government of Prime Minister Junichiro Koizumi created a “division between the rich and the poor, ”he said.

Kono’s primary balance policy is unclear, as the reformist maverick has only said the issue should be left to “various discussions.” Still, he said at a press conference last week that corporate tax relief is worth considering for companies offering pay increases.

Kono, who runs many media-led opinion polls as the frontrunner to replace Suga, said he sees the need for fiscal measures to deal with the COVID-19 pandemic, although details on the how it does this are rare.

Former Japanese communications minister Seiko Noda, the latest to join the fray to run for the party’s presidency, had yet to set many policies when she announced her candidacy on Thursday. Its website says it is focusing on fiscal consolidation.

With the pandemic slowing Japan’s economic recovery, there are still businesses and individuals in need of financial assistance. All candidates face the prospect of coming up with a bold stimulus package, said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.

Takahide Kiuchi, executive economist at the Nomura Research Institute, said the candidates may have chosen policies deemed popular with the public in preparation for the upcoming general election this fall.

The House of Representatives elections are likely to be held on November 7 or 14, beyond the four-year term of office for members of the lower house on October 21, according to lawmakers in the ruling party.

The Constitutional Democratic Party of Japan and three other opposition parties have proposed lowering the consumption tax rate by 10%, from 8% in October 2019, in their common set of policies for the elections. But the measure does not have the support of any of the candidates for the leadership of the PLD.

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