Japan’s incoming prime minister, Shigeru Ishiba, has emphasised the importance of fully emerging from deflation and plans to prioritise increasing wages to support economic growth. His comments, made shortly after winning the ruling party’s leadership contest, indicate that his immediate focus will be on sustaining economic recovery and improving household incomes.
A Plan To Revitalise Consumption And Economic Growth
Ishiba stressed that revitalising consumption is key to overcoming Japan’s economic stagnation. He stated that the new administration must consider effective strategies to mitigate the impact of rising inflation on households. During a news conference, Ishiba highlighted that Japan’s GDP has remained flat for the past two decades, with wage growth still failing to surpass inflation.
“Unless consumption increases, the economy won’t do well,” Ishiba remarked, pledging to accelerate outgoing Prime Minister Fumio Kishida’s policies aimed at raising household income through wage hikes. His comments suggest that Ishiba will continue many of Kishida’s economic initiatives, including support for the Bank of Japan’s (BOJ) shift away from extensive monetary stimulus.
Market Response And Economic Policy Outlook
The yen strengthened on Friday, recovering from earlier losses following Ishiba’s victory in the ruling Liberal Democratic Party’s leadership race. Known for his critical stance on past aggressive monetary policies, Ishiba’s win is seen as a positive step for the BOJ to continue its strategy of normalising interest rates.
Although Ishiba did not comment on monetary policy, analysts believe his leadership will give the BOJ more freedom to raise interest rates. Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, noted that Ishiba’s victory signals the end of the influence of “Abenomics”, a set of economic policies championed by deceased former prime minister Shinzo Abe.
Ishiba’s Economic Agenda And BOJ Policy Direction
Ishiba is expected to announce a fresh stimulus package to address rising food and fuel prices. This package will likely be funded by a supplementary budget, reflecting his commitment to cushioning households against inflationary pressures.
Under BOJ Governor Kazuo Ueda, who was appointed by Kishida, the central bank has already moved away from negative interest rates and raised short-term borrowing costs to 0.25%—a significant shift from its previous stance. Ueda has indicated that the BOJ will continue raising rates if inflation remains on track to hit 2%, while closely monitoring global economic uncertainties.
(With inputs from Reuters)
