Japan is turning to ‘Sugnomics’ – but analysts say the policy is likely. Abe’s legacy will continue

Japan’s new Prime Minister Yoshihide Suga is likely to pull out all the stops to revive the coronavirus-ridden economy, though analysts say outgoing leader Shinzo Abe’s policy will continue.

Suga was formally elected prime minister by the lower house of parliament on Wednesday, and took the helm as Japan’s first new leader in eight years.

Abe, who resigned in August due to ill health, is known for his economic policies, collectively known as “Abenomics”. The tripartite approach aims to combat deflation along with loose monetary policy and monetary spending along with structural reforms to cope with a rapidly aging population and revive economic growth.

Scott Seaman, Asia director of Eugasia Group, noted that Sugar’s new cabinet rollout showed his desire to maintain stability and continuity as he retained several ministers.

But Suga’s focus on “pulling out all the stops to support recovery” makes it possible to continue using that contingency reserve fund, passing another supplementary budget later this year or early next year, and coordinating a strong FY2021 regular budget. Will give new impetus. ”Seamen said in a note on Wednesday.

According to Fidelity’s Ketsumi Ishibashi, there are three main concerns from a market perspective.

“The stability of the administration is the top three concerns for promoting economic policy, structural reform and regulatory control of the government and supporting this key initiative,” Ishibashi, a senior cross-asset analyst and portfolio manager at Fidelity International, said in a note on Thursday. .

At his first press conference as prime minister on Wednesday, Suga said he would do his best to protect jobs while dealing with the coronavirus at the same time, according to a Reuters report.

Seamen of Eurasia said Suga would make it possible through:

• Sinking of 10 trillion Japanese yen (95 95.44 billion) out of contingency funds from the second supplementary budget for fiscal year 2020;
• Passing a third supplementary budget; And
• Compilation of a large regular budget for the 2021 financial year to move the economy forward.

“Next year’s budget is likely to be large, and we cannot rule out the possibility that the Sugani government will include new measures, such as a one-year tax holiday on personal income tax for new income earners,” Seamen said. Said Seaman.

However, Suga is unlikely to stray from the path of abenomics, analysts said.

Tom Learmouth, a Japanese economist at Capital Economics, said that even if Japanese politicians had a greater influence on monetary policy than other advanced economics, it would not make any immediate changes to Bank of Japan policy. But they will have the opportunity to reshuffle the central bank’s policy board when two members are replaced next year, Leirmouth said.

“One possible shift that could result is a greater desire to reduce policy rates: Mr Suga appears to be less concerned about the risks of financial stability from further rate cuts than current board members,” Learnmouth said in a report on Unpac King Sygnomics on Tuesday.

Suga is also expected to accelerate reforms for the regional banking sector due to concerns over deteriorating profitability.

“The coronavirus crisis exacerbates these concerns by running non-performing loans. As a result, we expect that mergers in regional banks will be encouraged to gain momentum under PM Suga. It will help reduce the risk to financial stability from a loose monetary policy.” He said.

When it comes to monetary policy, the gap between Suga and Abe is “small”, as Suga has promised to keep policy loose until the economy emerges from the epidemic, Leirmouth noted.

But Suga – which seems more supportive of immigration – could increase annual net relocations that will help offset some of the pulls from the declining working-age population. Once the economy is out of the epidemic – thus increasing productivity, she writes to Livermouth that, once it is out of the economic epidemic, it can at least force a more aggressive increase for wages.

Regardless of plans and changes, the new Japanese prime minister is short-lived ahead of him, as he faces a second Liberal Democratic Party leadership race in September 2021 – when Abe’s original term was coming to an end.