Analysis: The death of the father of “Abenomics” could give Japan the opportunity to slow the recovery

Japanese Prime Minister Shinzo Abe stands in front of the national flag of Japan after the ruling Liberal Democratic Party (LDP) annual convention in Tokyo, Japan March 5, 2017. REUTERS/Toru Hanai/File Photo

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  • Kishida should avoid leaving Abenomics in the short term
  • A shift in the party’s balance of power can pave the way for policy change
  • In the longer term, Kishida should phase out Abenomics
  • Declining power of reflationists could affect choice of new BOJ chief

TOKYO, July 10 (Reuters) – The death of Shinzo Abe, the namesake of Japan’s “Abenomics” policy, makes any immediate questioning of his legacy highly unlikely, but could possibly allow Prime Minister Fumio Kishida to phase out spending government and Abe’s monetary stimulus.

In a rare act of political violence that has shocked the nation, Japan’s longest-serving prime minister was gunned down on Friday while campaigning for Sunday’s legislative elections, where his party’s coalition widened its majority in the house high. Read more

Kishida is unlikely to do anything immediately that could antagonize lawmakers loyal to Abe, who led Kishida’s largest Liberal Democratic Party (LDP) faction after stepping down as prime minister in 2020. , according to analysts.

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But ultimately, his absence and the LDP’s victory in Sunday’s election, aided by a vote of sympathy for Abe, could give Kishida the political capital needed to change his political course.

The conservative coalition led by Kishida’s LDP was expected to increase its majority in the upper house in elections two days after Abe’s assassination. Read more

People close to Kishida said the prime minister and his aides want to move towards normalizing fiscal and monetary policies and winding down the Abenomics experiment launched nearly a decade ago.

“There is unlikely to be a quick reversal in Abenomics, nor an exit from ultra-loose monetary policy,” said Koya Miyamae, senior economist at SMBC Nikko Securities.

“Long term, however, the Bank of Japan needs to consider some form of monetary policy adjustment given issues such as the weak yen,” he said. “This means former or former BOJ leaders will remain strong candidates for the next central bank governorship.”

Kishida, who belongs to a smaller LDP faction, remained under pressure from Abe and his supporters to maintain massive stimulus and choose a reflationary dove as the next Bank of Japan governor in April.

Abe’s absence could shift the balance of power within the party, diminishing the influence of supporters of big government spending and ultra-loose central bank policies.

“Abe led a group of reflationary-minded ruling party lawmakers favoring big spending, so his absence will have a huge impact on the party’s balance of power,” said Daiju Aoki, chief economist for Japan. at UBS Sumi Trust Wealth Management.


Buoyed by huge public support for his campaign to pull Japan out of chronic deflation, Abe rolled out his “three arrows” in 2013 – aggressive monetary easing, flexible fiscal spending and a long-term growth strategy.

The massive BOJ stimulus, led by Governor Haruhiko Kuroda, helped reverse a relentless rise in the yen that hurt Japanese exporters, boosted stock prices and improved the business climate. Economists, however, criticized the lack of a credible growth strategy and reforms to help the economy move up a sustainable gear.

So far, Kishida has stuck with Abenomics, rolling out major spending programs to cushion the economic blow of the COVID-19 pandemic and recently to mitigate the impact of soaring energy and material costs. raw.

He also endorsed the BOJ’s ultra-low interest rate policy, even as other central banks hike rates, sending the yen to its lowest level in two decades.

“When we look at Japan’s gross domestic product, corporate earnings and employment conditions, it’s clear that Abenomics has delivered great results. What’s important now is to generate wage growth “, said Kishida during a television show on Sunday.

Eventually, Kishida may seek to reverse some of the radical monetary experiment set up by Kuroda, which has strained the profits of financial institutions and crippled prices in the bond market.

Kishida’s administration was forced to water down Japan’s balanced budget pledge after a backlash from Abe and his allies. Abe’s death could pave the way for Kishida to focus more on efforts to bring Japan’s public debt burden, the largest in the industrial world, under control.

“Abe was the standard bearer for those who support fiscal expansion. These people have lost their driving force,” said Mikitaka Masuyama, a professor at the National Institute of Policy Studies. “I wouldn’t say Kishida’s position in the party is rock solid, but he is now more likely than before to have better control over the party.”

While the BOJ is unlikely to reverse its ultra-loose monetary policy anytime soon, the waning influence of pro-growth lawmakers could also affect Kishida’s choice as BOJ governor.

The prime minister has the final say on who will succeed Kuroda, handpicked by Abe to deploy a monetary bazooka to stamp out deflation, at the end of his second five-year term.

Career central bankers Masayoshi Amamiya and Hiroshi Nakaso are seen as strong candidates, with Amamiya seen as taking a more dovish stance than Nakaso – who had warned of the downsides of prolonged monetary easing. Read more

“Abe would have favored a reflationary-minded person at the helm of the BOJ. The shift in the ruling party’s balance of power could affect the choice of BOJ governor,” UBS Sumi’s Aoki said.

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Reporting by Leika Kihara; Additional reporting by Kantaro Komiya and Daniel Leussink; Editing by Tomasz Janowski and William Mallard

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