Shigeru Ishiba, the newly elected leader and sitting chairperson of the Liberal Democratic Party (LDP), spoke during a press conference following his win in the party leadership elections on September 27, 2024, in Tokyo, Japan. Ishiba is expected to become Japan’s next prime minister. Known for his career as a political outsider and critic of party orthodoxy, some experts question his ability to govern effectively given his opposition stance.
Ishiba, who secured his position after his fifth bid to lead the LDP, has been a long-standing critic of former Prime Minister Shinzo Abe’s “Abenomics”—a policy characterized by loose monetary policy, fiscal stimulus, and structural economic reforms such as tax cuts. Contrarily, Ishiba has supported increasing taxes and fiscal tightening and has opposed the Bank of Japan’s (BOJ) negative interest rate policy that began under Abe.
Tobias Harris, founder and principal of Foresight, remarked on the significant legacy of Shinzo Abe, highlighting how Ishiba’s approach to this legacy was a crucial factor in the LDP race. Ishiba won the election in a runoff, defeating economic security minister Sanae Takaichi, who aligned more closely with Abenomics. Japan’s parliament is expected to formally appoint Ishiba as prime minister on Tuesday.
Sayuri Shirai, professor at Keio University and a former BOJ board member, noted Ishiba’s new mindset and vision for the country. However, she expressed uncertainty about whether Ishiba can implement the outsider policies that have defined his career. In a press conference, Ishiba indicated that Japan’s monetary policy should remain accommodative, a potential shift from his past support of interest rate hikes. He also hinted at continuing efforts to combat deflation, despite Japan reporting a 3% inflation rate in August.
Japan’s stock market reacted negatively on Monday following Ishiba’s election, with the benchmark Nikkei 225 experiencing a significant decline. Experts predict this may pave the way for the BOJ to raise rates further, despite economic uncertainties. A summary of opinions from the BOJ’s September meeting revealed that any rate increase would not proceed if financial and capital markets remain unstable.
Steven Glass of Pella Funds advised against further interest rate hikes, underlining Japan’s weak economic conditions and suggesting that Ishiba’s leadership supports maintaining current rates. Ishiba’s policy proposals include extending public support to rural and young communities and reducing Japan’s budget deficit, potentially necessitating tax increases, which may face political opposition.
Mio Kato of LightStream Research compared Ishiba’s situation to that of former Prime Minister Fumio Kishida, who initially proposed bold tax hikes but later retreated due to opposition and market reactions. Kato emphasized the challenge individual politicians face in drastically changing the party’s direction.
Shirai suggested that Ishiba might feel the need to appease Kishida’s moderate faction, which aided his election. To be transformative, Ishiba would need to convincingly advocate for potentially unpopular policies like tax hikes. However, Shirai remains uncertain of his capability to withstand criticism.
Harris from Japan Foresight doubted that Japan is ready to abandon Abenomics principles, such as fiscal spending and the belief in economic growth to address deficit issues. He concluded that there is little appetite for prioritizing spending cuts or tax hikes, suggesting that aspects of Abenomics may persist despite Ishiba’s criticism.
