Japan’s new leader Ishiba to face challenges dissenting from Abe’s legacy

Shigeru Ishiba, who will become Japan's next leader, has spent his career as a political outsider and an opponent of party orthodoxy. However, some experts doubt the former defense minister's ability to successfully govern.

The veteran politician, who won the Liberal Democratic Party leadership race for a fifth time on Friday, has long criticized former Prime Minister Shinzo Abe and his legacy of “Abenomics”, often defined by easy monetary policy, fiscal stimulus and structural economic reforms such as cuts. Tax.

Shigeru Ishiba, on the other hand, expressed support. increase taxes and fiscal austerity, but also Opposition to long-standing policies of the Bank of Japan Negative interest rates began under Abe’s administration.

Tobias Harris, founder and head of Japan Foresight, said: “Shinzo Abe's legacy remains huge, and how to use this legacy and whether it is time to correct course becomes a decisive issue in the LDP campaign. “

The election eventually entered a runoff, with Shigeru Ishiba defeating Economic Security Minister Takaichi Sanae, who claimed to be the “Minister of Economic Security.” Candidates more aligned with Abenomics. Japan's parliament is expected to formally vote on Tuesday to appoint Ishiba to the post.

Sayuri Shirai, a professor at Keio University and a former Bank of Japan board member, said: “Based on his past remarks, he seems to be a leader with new thinking and vision for the country.” He added that Ishiba and Takaichi represent Very many people.

But the economist said there is still a lot of uncertainty about whether Ishiba can actually implement some of the outsider policies and ideas that have defined his political career.

At a press conference shortly after his victory, Ishiba tell reporters Japan's monetary policy should remain loose to the economy, possibly signaling a break with the economy Past support for rate hikes.

He also reportedly said he would follow Prime Minister Fumio Kishida's lead in trying to free Japan from years of deflationary pressure. Although Japan reports that Inflation rate 3% Shirai said the idea of ​​Japan battling deflation in August was linked to sluggish domestic demand.

“The concept of deflation is a continuation of Abenomics through Kishida's tenure. As long as they continue to talk about it, it indicates that the Bank of Japan will need to keep interest rates very low for a long time,” she said.

Regardless, Japanese stocks fell on Monday as traders reacted to the election, which some experts predicted would clear the way for further interest rate hikes by the Bank of Japan. Japan's benchmark Nikkei 225 Index Shortly after the Bank of Japan raised interest rates in late July, Japan suffered its worst day since 1987.

Experts warn that market and economic uncertainty could make it harder for Ishiba to support a rate hike. In a summary of opinions from the September meeting released on Tuesday, a BOJ member said that “the central bank will not raise policy rates when financial and capital markets are unstable.”

Steven Glass of Pella Funds said on CNBC's “Squawk Box Asia” program on Monday that he believes Japan's economic conditions are weak and will not support another interest rate increase at this time.

“We don't think it makes sense for the Bank of Japan to raise interest rates now, and we think Ishiba supports this policy,” he said, adding that the politician's victory strengthened the company's belief that rates will remain unchanged.

At the same time, Ishiba's policy proposals aimed at providing more public support for rural and young communities, coupled with his desire to reduce Japan's budget deficit, may require higher taxes. This will be unpopular with certain political factions in the country.

Mio Kato of LightStream Research said on CNBC's “Squawk Box Asia” on Tuesday that Kishida had proposed bolder policies such as tax increases when he was first elected, but in the end walk many of them back amidst opposition and negative market reaction.

“The way the LDP operates, it's much more difficult for individual politicians to change the overall direction of the party very strongly,” he said, adding that he didn't expect Japan's current economic policy to change direction much.

After helping Kishida get elected on Friday, Ishiba may also feel a greater need to appease the more moderate Kishida faction in the party, according to Keio professor Shirai.

“To be a transformational leader, Ishiba will need to be able to be honest with the public and promote policies such as taxes that may be more unpopular and draw criticism. So far, it's uncertain whether he can withstand that,” Shirai said. explain.

Meanwhile, Japan Foresight's Harris said he doubts Japan is ready to completely jettison some aspects of Abenomics, such as fiscal spending and the belief that the government can steer the economy away from its deficit problem.

“There's not much appetite to prioritize spending cuts or tax increases… In that sense, we don't seem ready to abandon Abenomics, even though Ishiba has been a strong critic of it,” he said.