Takanomics? The Takaichi trade? Sanaenomics? There’s no consensus yet on what to call the global investor moment spurred by Sanae Takaichi’s election as Japan’s presumptive next prime minister.
The need for a label harks back to the Abenomics era of Shinzo Abe—and on the surface, there are lots of similarities. The come-from-behind victory of the market-friendly candidate who catches global attention. The re-emergence of figures like Etsuro Honda, the visionary who advised the late Abe and is now doing the same for Takaichi. And the willingness to put public pressure on the Bank of Japan.
So far, so familiar. But this moment is no Abenomics 2.0. And what’s more, that’s just fine.
For starters, Takaichi has a much weaker hand to play than her mentor did. True, Abe was elected in 2012 while the customarily ruling Liberal Democratic Party (LDP) was in opposition. But the writing was already on the wall for the Democratic Party of Japan’s flailing government.
Within months, Abe swept a general election that gave him a strong mandate for change.
By contrast, the new party leader has been left with one of the poorest positions imaginable. The LDP is a minority in both houses of parliament. Takaichi’s confirmation as PM by parliament is being delayed until at least 21 October, and [with its] longstanding coalition partner Komeito [having walked out], it could lead to a restructuring of Japan’s political landscape.
In any event, in the absence of a new coalition partner, she’ll have to strike deals with opposition parties just to [achieve leadership and stay in power].
In Abe’s day, he was responding to public outcry for change to shake up an economy suffering from not just chronic deflation, but the double whammy of the post-Global Financial Crisis downturn and the 2011 tsunami and nuclear disaster.
Takaichi’s priorities must be elsewhere. The LDP president has talked up easy money and economic growth policies, which the stock market loves. But the biggest issue on voters’ minds is inflation, particularly at supermarket checkouts.
She must devise quick wins to ease pressure on low-income households—while avoiding falling back into deflation. And she’ll have to thread a needle on immigration, by being seen to tackle rule-breakers while continuing to boost foreign labour to cope with shortages. Grand growth visions will have to wait.
But the biggest difference is Japan itself. Abe inherited a country full of potential but dealing with vast structural issues. Japan was criminally undervalued in 2012, from corporates to property; the problems it faces today are far less acute, and valuations reflect that.
The yen was trading around 77 to the dollar, and, as exporters failed, the uproar was about how strong the currency was. The massive weakening that resulted was welcomed. That wouldn’t be the case now; if anything, Takaichi must try to strengthen it.
There are things she can draw from. ‘Abenomics’ was, above all, a masterful piece of PR to attract foreign money. It had a catchy name and a simple concept; anyone could understand the metaphor of the three arrows, flimsy on their own but strong together, for the more nebulous concepts of combining monetary and fiscal policy with reforms. Takaichi should take inspiration from the public relations standpoint.
And like Abe, she shouldn’t be afraid to have sharp elbows. We saw an example of that in her advisor Honda warning the Bank of Japan (BoJ) away from an October rate hike. One of the late PM’s early bold moves was the 2013 joint government-BoJ statement that set the current 2% price target. She should move to update that and get Governor Kazuo Ueda on the same page.
We don’t know what policies Takaichi would actually pursue. It’s hard to do bold things with Japan’s ministry of finance clutching the purse strings and party kingpin Taro Aso watching over her shoulder. Nonetheless, her pro-growth attitude will at least be an improvement on recent administrations.
Most importantly, Japan is not in need of another short-lived Abenomics moment. That era needed the shock and awe of the BoJ’s monetary easing ‘bazookas’ to reignite global interest and rekindle animal spirits. But that’s not what the country needs now, when corporate profits are at record highs, unemployment near historic lows and the looming issue is how to address a labour crunch with a public wary of immigration.
Takaichi likes to declare that “Japan is back,” but that’s the wrong idea; its global relevance has rarely been higher. What’s needed now isn’t the Abenomics bazooka, but a well-placed arrow: targeted, smart growth policies. ©Bloomberg
The author is a Bloomberg Opinion columnist covering Japan and the Koreas.
AloJapan.com