As Yoshihide Suga, the frontrunner to replace Japanese prime minister Shinzo Abe, contemplated his candidacy, he met a business leader to discuss what policies to focus on.
“I want to continue Abenomics and enhance it,” he said, putting it at the core of his proposals.
As Mr Abe's chief cabinet secretary, in charge of overseeing Japan's powerful bureaucracy, Mr Suga did not have a choice. For the past seven years and eight months, the loyal lieutenant has been seeing Mr Abe at least twice a day.
Massive monetary easing and fiscal stimulus — the pillars of Abenomics — are expected to be central to “Suganomics” if he is indeed elected leader of the ruling Liberal Democratic party and becomes the next prime minister.
And it is what his party wants, too. “The next prime minister will have to take over the Abe cabinet as well as his wishes,” said Hiroyuki Hosoda, a leader of the LDP’s leading faction, which has decided to back Mr Suga.
Perhaps the biggest difference between Mr Abe and Mr Suga lies in fiscal policy. Unlike Mr Abe, who leaned heavily on reflationist advisers like Etsuro Honda to pursue aggressive monetary easing, Mr Suga does not have anyone espousing that monetary theory in his brains trust.
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Instead, Mr Suga seeks counsel from such figures as Suntory Holdings president Takeshi Niinami, Future chairman Yasufumi Kanemaru and David Atkinson, CEO of Konishi Decorative Arts and Crafts. Mr Atkinson helped develop an outline of Mr Suga's policy promoting inbound spending.
More recently, Mr Atkinson suggested ways to boost productivity, such as lifting the minimum wage and consolidation of small and medium-sized businesses.
Mr Suga has maintained his distance from advocates of increased public spending, such as former Abe adviser Satoshi Fujii, who called for the bolstering of infrastructure against natural disasters. Mr Suga is more receptive to fiscal tightening.
Thus, Mr Suga might take a more moderate approach that mixes an aggressive fiscal policy with spending reforms.
But all in all, he has practical reasons to keep up Abenomics.
On August 31, when news broke that Mr Suga would announce his candidacy, the Nikkei Stock Average soared by as much as 450 points during intraday trading as investors cheered the prospect of continued economic support under Mr Suga.
If the Bank of Japan maintains purchases of exchange traded funds, on top of Japanese government bonds, it will help sustain stock prices.
Robust stock prices would then lead to support for the new government. Backed by strong public approval ratings, Mr Abe led the LDP to victory in the last six national elections, paving the way for his long reign.
Mr Suga would probably urge the BoJ to keep up its muscular monetary easing, extending the 2013 policy agreement signed between the government and the central bank.
Elements of Abenomics concerning exchange rates and monetary policy might be strengthened even further.
As chief cabinet secretary, Mr Suga focused on controlling the sharply appreciating yen. The BoJ, the Ministry of Finance and the Financial Services Agency were instructed to meet regularly to monitor speculative transactions.
He also used his bully pulpit to warn against the yen's excessive appreciation.
“Visibly biased activity is occurring in the foreign exchange market,” Mr Suga would say during daily news conferences.
Mr Suga also oversaw a change in the government's schedule for setting drug prices so that prescription costs are revised every year, instead of the previous system of every two years, to reduce medical spending.
For now, Mr Suga has called the coronavirus response the top priority. The government is likely to pursue a proactive fiscal policy that includes stimulus packages until the pandemic is brought under control.
The economic growth strategy would continue to follow Mr Abe's trajectory, but the influence of the Ministry of Economy, Trade and Industry would be likely to fade.
Mr Abe has staffed his office with key economic policy figures such as Takaya Imai, who hails from the METI. The people on the economic strategy committee chaired by Mr Abe are a veritable who's who of bureaucrats.
Mr Suga, as a politician who favours balance, is unlikely to lean heavily toward the economic ministry. That could open the door to faster hikes in the minimum wage, something the METI has resisted, citing the burden on corporations.
Rather, Mr Suga will move to review the authority of all ministries and agencies, and is likely to further promote deregulation as a growth strategy. As chief cabinet secretary, he has controlled the bureaucracy in Kasumigaseki with strong leadership and tried to push for reform in areas with strong government controls, such as lowering mobile phone charges. If he becomes prime minister, the government will take further measures.
Japan faces the most significant greying population among advanced nations, and countering the status quo will require a global policy focus.
Mr Suga overcame party resistance to implement a visa programme that opened the doors for unskilled foreign workers, a shift from the previous policy, which centred on internship programmes that often confine foreign workers to low-paying jobs. The new programme calls for wages on a par with those of native Japanese and set the stage for bringing in coveted foreign talent.
His efforts to bring in more foreign tourists and increase farm exports can help strengthen his economic ties with the rest of Asia.
Japan played host to 31.9m foreign tourists last year, up from 8.4m in 2012, during the previous government under the Democratic Party of Japan. Mr Suga hopes to raise the number to 60m people.
Japan plans to export ¥5tn ($47.2bn) worth of farm products in 2030, mainly to Asia, up from less than ¥1tn today.
Mr Suga is prepared to maintain Mr Abe's direction on foreign policy, centred on the US-Japan alliance. Referring to the concentration of business production sites in China, Mr Suga said in a Nikkei interview in April that it was necessary to “diversify manufacturing bases over several countries.”
Amid the tensions between the US and China, Japan enacted legislation last year that places new restrictions on foreign investments in domestic companies. Tokyo shares Washington’s wariness on the potential transfer of technology to China.
Once Japan overcomes the coronavirus crisis, Mr Suga would be able to set his sights on major reforms.
“It's key to overhaul the social insurance system,” Mr Suga told Nikkei in the same interview. “The foundation of a nation is self-aid, mutual aid and public aid. We'll continue to build a nation that is trusted by its people.”
A version of this article was first published by the Nikkei Asian Review on September 2, 2020. ©2020 Nikkei Inc. All rights reserved.
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