Japan’s next ruler: higher wages heal pandemic slump

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MITO, Japan (AP) – Fumio Kishida, the soon-to-be prime minister of Japan, says he believes raising incomes is the only way to boost growth in the world’s third-largest economy.

Almost a decade after longtime Prime Minister Shinzo Abe pledged to “make Japan great again”, Japan is on hold, stuck by both the pandemic and problems chronic conditions such as an aging and shrinking population, growing inequalities and stagnant incomes.

Topping Kishida’s to-do list is another big dose of government spending to help Japan recover from COVID-19 shock.

Kishida says he wants to promote a “new capitalism” that is more equitable, with a fairer distribution of national wealth – the only way to get frugal Japanese families to spend more.

“Unless the fruits of growth are properly distributed, a ‘virtuous cycle of growth and distribution’ cannot be achieved,” he told reporters after being elected by an overwhelming majority on Wednesday. of the ruling Liberal Democratic Party. “I would like to take economic measures to increase the incomes of many of you.”

Despite his ambitious speech, Kishida is seen as a choice of the establishment, not a reformer. He is a former banker and a solid member of the political elite: his father and grandfather were also politicians.

Analysts say Kishida, who is almost certain to be elected prime minister by parliament on Monday, is unlikely to stray from Abe’s high-dose stimulus agenda. Neither does the current Prime Minister, Yoshihide Suga, who is stepping down after a year in office.

Kishida’s top priority? “The economy,” he told national broadcaster NHK.

He said he plans to come up with a spending package worth hundreds of billions of dollars in the near future.

Its support for housing and education subsidies should boost consumer spending, said Naoya Oshikubo, senior economist at SuMi TRUST. He expects a “tailwind for the stock market, as it will clearly show that the economic policies of ex-Prime Minister Abe will continue.”

Under Kishida, the Bank of Japan should stick to its long-standing efforts to stimulate growth by keeping interest rates near zero – which makes borrowing cheap – by injecting trillions of yen (hundreds of billions of dollars) into the economy through asset purchases.

The benchmark Nikkei 225 fell 0.4% in morning trading on Thursday after data showed factory output and retail sales weakened in August as the country struggled to fight the pandemic.

Stock prices are near their highest levels in three decades, but that wealth is not spilling over to the average Japanese. Their inflation-adjusted income is declining. Meanwhile, jobs are increasingly insecure as companies increasingly rely on part-time and contract workers to keep costs low – the average minimum wage in Japan is only 930 yen (8 , $ 30), while the cost of living is higher than in many Western countries.

The number of families depending on Japan’s meager social benefits increased during the pandemic and poverty increased, especially in families headed by single mothers. What was called a “lost generation” during Japan’s long years of stagnation has become an “underclass” representing about four in ten Japanese, says Kenji Hashimoto, a professor at Waseda University.

He and other experts believe the postwar formula that made Japan an industrial power is outdated.

A soft-spoken pragmatist, Kishida has not explained in detail his vision for the “new capitalism” and it is unclear whether he has a comprehensive strategy to tackle the long-term problems that hamper growth.

This means that other party leaders, the central bank and the bureaucracy may have greater influence and could thwart big changes such as labor reforms that economists say hamper improvements in productivity.

With nearly a third of the population already 65 or older, healthcare and pension costs are skyrocketing, and ordinary families are paying a growing share of the bill. Kishida says the sales tax, now at 10%, shouldn’t be increased for about a decade to avoid stifling a recovery in demand.

Corporations own a growing share of wealth, accumulate profits, and pay lower taxes: As of June 30, 2020, corporate retained earnings in Japan were nearly 460 trillion yen (approximately 4.2 trillion yen). dollars)

Poverty is generally hidden in an affluent and orderly Japan, and homelessness is not as widespread or visible as it is in the United States and some other countries. But living standards are falling and will continue to fall unless the value of labor per person rises as the population shrinks. According to economists, increasing productivity is also essential for raising wages.

Despite the famous efficiency of manufacturers like Toyota Motor Corp., Japan ranks 21st among 36 countries in the Organization for Economic Co-operation and Development. His productivity per hour was less than $ 50 in 2018, compared to nearly $ 75 an hour in the United States and around $ 102 in Ireland.

Kishida has said little about the productivity problem, although he is ahead of one area of ​​reform: what the Japanese call “digitization”.

The slow and clumsy management of pandemic relief payments and vaccinations has made clear the urgency to modernize Japan’s data sharing and utilities. A new digital agency was launched on September 1 to move away from reliance on fax machines, handwritten documents and ink pads, helping to streamline red tape.

Such changes are necessary but will not fix the economy, Richard Katz, editor-in-chief of The Oriental Economist, said in a recent online briefing.

“There are a whole bunch of challenges,” he says. “They can be solved, but it requires a Prime Minister with a will to act, who has a strategy.”

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