[The Kishida-nomics is Coming]② "Raise the Potential Growth Rate"... Strengthening Japan's Kishida Economic Policy

Emphasizing New Capitalism Focused on Growth and Distribution
Criticism of Abenomics for Benefiting Only Corporations
Boosting Economic Strength Through 'Investment in People'
First Policy Pushes for 'Wage Increases'
Some Criticize It as Leaning More Toward Growth Than Distribution

As Kuroda Haruhiko, who has played a leading role in Abenomics, concludes his term this April, Japan's decade-long large-scale monetary easing policy is expected to come to an end. Attention is focused on whether Prime Minister Kishida Fumio's advocated 'new capitalism' economic plan will gain new momentum. While Abenomics focused on overcoming economic stagnation through monetary policy, Kishidanomics places emphasis on restructuring social systems to raise potential growth rates.

◆Kishida's Indirect Criticism of Abenomics... Emphasizing Growth and Distribution

Japanese Prime Minister Fumio Kishida
Photo by AP Yonhap News

Immediately after taking office in October 2021, Prime Minister Kishida declared his intention to lead a new capitalism emphasizing 'growth and distribution.' This was due to the serious divisions and conflicts caused by neoliberalism, where corporations monopolized the fruits of economic growth. This has been interpreted as an indirect criticism of Abenomics, which caused a decline in the yen's value through quantitative easing and benefited corporations through corporate tax cuts.

Abenomics attempted to pull Japan out of the deflationary trap (continuous price declines) through three methods: quantitative easing, large-scale fiscal spending, and growth strategies inducing corporate investment, but it failed to increase consumers' spending power. This was because increased corporate profits did not translate into higher wages for workers. In fact, in 2021, the share of wages in Japan's total national income was 62.6%, marking the lowest level in 30 years since 1990.

The potential growth rate, which indicates the fundamental strength of a national economy, also declined from 0.9% to 0.2% over the past decade. Although dividend and interest income increased due to the weak yen, money did not circulate as companies did not increase facilities and investments. Furthermore, the declining birthrate exacerbated labor shortages. Abenomics produced only a temporary effect such as increased corporate exports due to the weak yen, but ultimately failed to revive Japan's fading growth engine, becoming a failed policy.

◆Investment in People and Growth... Focus on Wages and Childcare Policies

[Image source=Pixabay]

Prime Minister Kishida's card to strengthen Japan's weakened economic fundamentals is expanding 'investment in people.' Unlike Abenomics, which benefited only corporations, the plan aims to improve the economic structure so that everyone can share the fruits of growth. The appointment of Ueda Kazuo, former Bank of Japan Policy Board member, as the new governor is seen as a strategic move to gain momentum for new economic policies. Governor Ueda has consistently criticized the growth model relying solely on central bank monetary policy.

First, Kishida made wage increases the first button of investment in people policy. He believes that a minimum 3% wage increase is necessary to maintain Japan's inflation rate stably around 2%, and the government has launched a campaign to this effect. In his policy speech at the regular Diet session in January, Kishida called for wage increases exceeding inflation and sought cooperation from the business community.

Additionally, a system was introduced to evaluate whether large corporations are willing to negotiate delivery prices to prevent small and medium-sized enterprises (SMEs) from suffering due to price-cutting by large companies. This is based on the judgment that improving SMEs' financial difficulties will create room for wage increases. Furthermore, the corporate tax credit rate for companies that raise total employee salaries has been significantly expanded.

Kishida intends to lead this trend so that corporate wage increases do not end as a one-time event. By inducing companies to raise wages, attracting high-quality talent, increasing productivity, and thereby creating fiscal capacity to raise salaries again, he aims to establish a virtuous cycle.

To sustain the wage increase trend, plans are underway to support retraining for one million workers, including non-regular employees, to help them secure regular employment in high value-added industries. This policy is implemented to reallocate talent to new industrial sectors amid labor shortages caused by low birthrates.

A father is lifting a baby in Tokyo, Japan. The photo is not related to the specific content of the article.
Photo by EPA Yonhap News

Childcare policy is also considered as important as wage increases. On the 15th of last month, Kishida announced plans to double the family-related budget from 2% to 4% of GDP. Additionally, the political sphere is discussing expanding child allowance benefits from middle school students to high school students and removing parental income restrictions. Japan experienced a severe population decline last year, with the annual number of births falling below 800,000 for the first time ever. The shrinking labor force due to declining birthrates is identified as a main factor in the drop of potential growth rates.

While addressing distribution to reduce wealth disparity, efforts are also being accelerated to promote economic growth in digital and science technology sectors. The Kishida Cabinet plans to designate quantum technology and artificial intelligence (AI) as national strategic industries to encourage corporate investment. Furthermore, recognizing that Japan's startup ecosystem is underdeveloped relative to its economic size, a five-year plan to foster startups will be established.

◆Criticism That Growth Is Weighted Over Distribution... "No Difference from Abenomics"

Japanese Prime Minister Fumio Kishida [Photo by Yonhap News]

On the other hand, some point out that contrary to initial plans, Prime Minister Kishida appears to be placing more weight on growth than distribution. Essentially, Kishidanomics is no different from Abenomics, which also focused on growth.

When Kishida first announced his plan for the Kishida-style new capitalism in 2021, he emphasized strengthening distribution policies such as expanding taxation on high-income earners' financial income and establishing regulations on corporate share buybacks. However, these alternatives were all omitted in the concrete implementation plan announced in June last year. It appears he stepped back from his original stance after stock prices plunged following remarks on financial income taxation.

The Asahi Shimbun criticized, "Contrary to Prime Minister Kishida's initial plan, measures to strengthen distribution have disappeared, and most of the plan is devoted to growth strategies such as corporate development. If the economic policy merely repeats growth strategies that have been tried several times by past governments, it loses the value of being called 'new capitalism.'"

There is even criticism that the Kishida Cabinet is exacerbating wealth disparity. Kishida announced a plan to double citizens' asset income, called the 'Asset Income Doubling Plan,' but this has been criticized as a policy that only fattens the wealthy.

The Asahi Shimbun pointed out, "Currently, Japan faces severe disparities in citizens' asset holdings. The government should focus first on ways to return profits to workers, rather than favoring certain groups and high-profit companies, which is no different from the neoliberal ideas the Prime Minister seeks to avoid."