The ascendency of Prime minister Kishida and his new focus on economic inequality has many wondering whether Japan has reached the final death knell of ‘economic reform’ – a euphemism for the kind of neoliberal policies that may be able to make a dent in the government’s enormous debt. Kishida’s new focus on redistributive growth would seem to be a rebuke to the third arrow of Abenomics. However, it is worth investigating how committed the Abe administration ever really was to economic reform.
Abenomics was nothing if not a victory of public messaging. Who doesn’t remember the “three arrows” fiscal stimulus, super easy monetary policy and of course “economic reform”? However, while easy monetary policy and consistent fiscal stimulus became hallmarks of the Abe era, the economic reform arrow always seemed to be mysteriously missing from the quiver.
In truth Japan has had only two prime ministers firmly committed to some form of fiscal consolidation. The first was Hashimoto Ryu̅taro, whose premature attempt to reign in government spending whilst Japan still languished in the aftermath of the early 90s property bubble is widely seen as a failure. Then of course there is legendary reformer Koizumi Junichiro, who built his reputation on a promise to tear down Japan’s developmentalist status quo and privatise the behemoth that was Japan Post – the country’s largest government employer. Koizumi’s tenure ended before his signature policy was complete – with Japan Post technically a private entity but still 100% owned by the Ministry of Finance.
It was Abe who would revive the JP privatisation process with an IPO finally occurring in 2015. However, the sell-off has itself proceeded slowly with the new Japan Post Holdings still 56.88% government owned. When we look back at Abe’s own history this makes sense. While Abe rose through the ranks in the Koizumi era, he always had an ambiguous relationship with “Koizumi’s children” – the tranche of young reformist LDP MPs who came into the parliament in the 2005 election. Instead, Abe made his name as a foreign policy Hawk who took tough lines on constitutional revision and the return of Japanese abductees from North Korea. When he returned to the Prime ministership for a second bought in 2012, Abe was still very much a politician in search of an economic ideology, which may explain the ambiguous relationship he has always had to what is ostensibly his own regulatory reform agenda.
The other key piece of economic modernisation that was meant to define Abe’s third arrow was incremental increases in the consumption tax. These increases would theoretically bring Japan in line with other developed countries and reduce the long-term debt by widening the country’s narrow tax base. The move was championed by neoliberals within the Ministry of Finance and supported by Abe’s pick for BoJ governor Kuroda Haruhiko. Kuroda’s logic was textbook economics – he argued that a long-term government commitment to reducing the debt would in turn make the BoJ’s 2% reflation target appear credible to businesses and households. However as is often the case reality did not align with theory. Every time the consumption tax was raised the fragile revival of consumer demand would crater and the 2% target would seem ever more unreachable. Of all the players in the game it was Abe and his cabinet who seemed most reluctant to pursue the tax increases, with raises delayed several times and the country even going to a snap election over the issue in 2014. Abe also showed no sign of reigning in the wide-ranging stimulus packages that have defined the LDP since the 1960s, launching the largest yet with the onset of the corona virus in 2019.
After a brief continuation of Abe’s policies in the short lived Suga cabinet, Japan now has a new prime minister. Whilst public opinion favoured and LDP party rank and file members favoured the reformist Kono Taro the party MPs choose the middle of road Kishida. Kishida’s economic agenda has refocused on addressing the growing economic inequality that has become a cornerstone of public frustration with Abenomic’s ‘welfare for the wealthy’. In his first speech on economic policy Kishida did pay brief lip service to fiscal consolidation saying his government would work to “put public finances on a sound footing”. However, he also stated (rather less ambiguously) that “neoliberal policies have had the harmful effect of creating a deep rift between the ‘haves’ and the ‘have nots’” and that “It is only when the fruits of growth are properly distributed that subsequent growth materializes.” The core of Kishida’s approach was to be an “income doubling plan” a call back to the language of that original hero of big spending LDP developmentalism – Prime Minster Hayato Ikeda. However, this language was quickly dropped, perhaps a sign that Kishida’s redistributive ambitions may already be in the process of being tempered by the veteran bureaucrats that control the implementation of the cabinets agenda. On the other hand a modest rise in the minimum wage, up to 930 Yen per hour, may be a sign that Kishida wants to blunt the appeals increasingly vocal and organised opposition parties on the left.
Through the reformism of Koizumi and then mixed approach of Abe, Kishida would so far seem to be a return to LDP classic – big spending policies that keep both the corporate sector and the public onside through a mix of growth and distribution. Whether Kishida can recapture the miracles of the 1960s remains to be seen but one thing is clear: Abe’s third arrow is stuck in the ground somewhere well short of the target and Kishida has no interest in picking it up.