Suga considers structural reforms for indebted Japan by Bloomberg

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(Bloomberg) – Yoshihide Suga, the man expected to become Japan’s new prime minister later today, has a reputation for being a tough, task-oriented micro-manager rather than a self-proclaimed macro coxswain like Shinzo Abe.

Suga has vowed to stay true to the Abenomics, but economists doubt there is much more monetary spice to squeezing out of the Bank of Japan or greater spending follies left in a public treasury already more dependent on debt than any. other developed economy.

This leaves the third pillar of Abenomics, structural reform, as Suga’s best line of attack for reshaping economic policy. Suga sees himself as a reformer who wants to bring the Japanese bureaucracy into the digital age and tackle thorny issues such as regulatory reform and administrative inefficiency.

“I’m optimistic because under Abenomics – and of course Suga was one of the main architects of it – they’ve done just about everything they can do in macroeconomic policy,” said Robert Feldman. , senior advisor at Morgan stanley (NYSE đŸ™‚ MUFG. “Where Abenomics has been a little less aggressive has been on some of the structural reforms, this is an area where Suga is very keen to move forward.

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Suga has previously called for increased competition among mobile operators to lower fees and alluded to the need to eliminate weaker regional banks. It remains to be seen whether it will continue to identify industries at a micro level or expand to more global change.

“I want to make solid progress on regulatory reform,” Suga said after taking over as leader of the ruling party on Monday. “I want to take a look at the things that are wrong and move Japan forward by breaking down ministerial divisions, vested interests and a culture of just doing what has been done before.”

Suga is used to keeping bureaucrats in line and consolidating their responsibilities, and has even written a book about it. This suggests that he could act quickly on administrative reform and the establishment of a digitization agency.

He also worked in Junichiro Koizumi’s deregulation-oriented administration that pushed job growth outside the comfortable guarantees of lifetime employment in Japan.

Another break in the wall separating regular workers and contract workers on pay and job security would likely impress economists, especially if it improves productivity. But Suga has remained silent on the subject of labor market reform, casting doubt on how he will drastically attempt to shake things up.

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He also has a difficult act to follow. With the big picture, Abe generated optimistic expectations for change both at home and abroad when he rose to power by promising to restore Japan’s economic power and prestige and to eliminate deflation. Abe again boosted confidence in Japan’s renewed leadership after years of short-lived prime ministers.

With an election slated for just over a year at the latest, the more country-focused Suga will need to show that he can retain the confidence of voters and the market to ensure he stays long enough to win. ground on reform. First, it will need to pull the economy out of a historic hole, following the destruction of Covid-19, while controlling new infections.

He may even prefer that the elections be ruled out early, before any risk of getting tangled up in difficulties, to give his administration a clearer mandate and secure a longer-term prime ministerial post.

So far, financial markets have found solace in Suga as a replacement for continuity. The has reversed the losses since the announcement of Abe’s shock resignation on August 28. The yen remains slightly weaker against the dollar.

Suga has touted both a weaker yen and higher stocks as achievements of Abenomics, suggesting that he will stay on the same path until those market criteria change drastically. But beyond that and a bit of talk about reform, the new prime minister has kept his political explanations to a minimum. Nor has he yet identified key economic advisers like Abe in reflationists Koichi Hamada and Etsuro Honda.

“We call it Suganomics because Suga says he will maintain Abe’s economic policy, but I don’t know if Suga will really integrate a particular mix of policies as part of his strategy,” said Hideo Kumano, economist in chief at Dai-Ichi Life Research Institute. “Maybe Suganomics doesn’t have much savings at all. Talking about specific topics isn’t really a set of rules. “

When Suga suggested a sales tax hike was inevitable last week, he quickly backed down on those remarks that lost votes to align with Abe’s stance, an indication he doesn’t want to stray too far from the status quo. Economic growth must come before balancing the nation’s books, Suga said. The burden of public debt on GDP is expected to increase to 268% this year, according to Bloomberg Economics.

According to Hiroshi Matsumoto, head of investments in Japan at Pictet Asset Management, the markets will eventually assess the differences compared to Abe.

“It’s a bit too much to say that Suga’s policy is too micro-oriented, but it lacks easy-to-understand talking points that will appeal to foreign investors,” Matsumoto said.

© 2020 Bloomberg L.P.

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