Japan’s New Prime Minister Shigeru Ishiba Advocates Economic Revitalization

By Leika Kihara and Makiko Yamazaki

TOKYO (Reuters) – Japan’s incoming prime minister Shigeru Ishiba emphasized the importance of boosting the economy’s emergence from deflation and pledged to enhance wages, indicating his focus will be on sustaining economic recovery.

Ishiba indicated that revitalizing consumption is crucial to lift Japan out of economic stagnation, stating that the new administration must find effective strategies to protect households from the impacts of rising inflation.

“Japan’s gross domestic product has been flat for the past two decades,” Ishiba noted, highlighting that wage growth has yet to outpace inflation. He made these comments during a news conference after winning the ruling party leadership race on Friday, which effectively positions him as the next prime minister due to the party’s parliamentary strength.

Ishiba asserted, “Unless consumption increases, the economy won’t do well,” and promised to expedite efforts from Prime Minister Fumio Kishida‘s administration aimed at increasing household income through wage hikes.

His statements indicate that Ishiba will largely continue Kishida’s economic strategies, which included measures to improve wages and support the Bank of Japan’s transition away from extensive monetary stimulus.

Parliament is expected to elect Ishiba as the new premier on Tuesday, at which time he will also establish a new cabinet.

Following Ishiba’s victory, the yen rebounded, recovering from earlier losses. Ishiba, a former defense minister known for his skepticism towards past aggressive monetary stimulus, secured the ruling Liberal Democratic Party’s leadership over Sanae Takaichi, who supported former Premier Shinzo Abe‘s “Abenomics” policies.

Although Ishiba did not make remarks regarding monetary policy during his press gathering, analysts interpreted his election as lifting potential hindrances for the BOJ in further interest rate hikes.

Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, remarked, “Ishiba’s win would give the BOJ a freer hand, as he does not seem to have a strong perspective on monetary policy and is likely to respect the central bank’s decisions.” He went on to predict that the influence of Abenomics would diminish significantly with Ishiba at the helm, with the next interest rate increase anticipated as early as December.

Takeshi Minami, chief economist at Norinchukin Research Institute, also stated that Ishiba’s victory would make it easier for the BOJ to normalize monetary policy, suggesting Japan is moving on from Abenomics.

Ishiba is expected to announce a new stimulus package aimed at mitigating rising food and fuel prices, which will be financed by a supplementary budget.

Under Governor Kazuo Ueda, appointed by Kishida, the BOJ exited negative rates in March and increased short-term borrowing costs to 0.25%, marking a significant shift from prolonged monetary stimulus.

Ueda mentioned that the BOJ will continue to raise rates if inflation consistently approaches the 2% target, although he emphasized the importance of assessing how global economic uncertainties affect Japan’s fragile recovery.