"Female Abe" Prime Minister Takaichi Takes Office... Inherits Abenomics [Current Affairs Show]

Succession of Abe's Economic Policies, Focus on "Sanaenomics"
Pressure on South Korea's Export Competitiveness and Domestic Market... Concerns Over "Beggar-Thy-Neighbor" Effects

■ Broadcast: The Asia Business Daily 'Soh Jongseop's Current Affairs Show'

■ Host: Soh Jongseop, Political Specialist

■ Director: Lee Miri, Producer

■ Guest: Lee Hyunwoo, Reporter

With Sanae Takaichi taking office as Japan's new prime minister, she has announced her intention to pursue 'Sanaenomics,' a continuation of Abenomics. Takaichi, often called the 'female Abe' for closely following the policy line of former Prime Minister Shinzo Abe, has introduced economic policies that have immediately impacted the Japanese stock market. The Nikkei Index has soared past an all-time high of 49,000, reflecting heightened investor expectations. However, concerns are rising that the South Korean economy, which was negatively affected by the yen depreciation under previous Abenomics policies, will inevitably face weakened export competitiveness.

Expectations for the Resumption of Abenomics... 'Sanaenomics' in Full Swing

AP Yonhap News

Sanaenomics, promoted by Prime Minister Takaichi, is based on the core 'three arrows' policy of Abenomics. The three arrows refer to unlimited quantitative easing, expansionary fiscal policy, and structural economic reforms. Specifically, the strategy involves lowering interest rates to zero and maintaining them for an extended period, injecting massive liquidity into the market, and encouraging banks to increase lending to businesses and individuals to stimulate investment in real estate, stocks, and business ventures, thereby boosting the economy.

To address potential side effects such as a sharp rise in prices, the government plans to significantly expand fiscal spending to compensate workers' wages and provide welfare benefits, aiming to raise wage growth above the inflation rate and ease the burden of inflation. Once the economy is revitalized, the policy calls for structural reforms such as deregulation, restructuring of public enterprises, and elimination of irrational practices.

Prime Minister Takaichi has stated that she will go a step further than Abenomics by issuing even more deficit bonds and implementing a bolder fiscal policy. She believes that, to overcome the current global economic downturn, aggressive fiscal stimulus is necessary-even at the cost of significantly increasing national debt. In response to this announcement, the Japanese stock market reacted immediately. The Nikkei Index surpassed its all-time high of 49,000, and there are predictions that it could soon break the 50,000 mark. Expectations that the government will inject large-scale liquidity into the market are driving funds into the stock and asset markets.

However, Japanese academia holds a rather negative view of Sanaenomics. The primary reason is that the current economic situation is vastly different from when Abenomics was implemented. When Abenomics was launched in 2012, Japan's main economic challenge was overcoming deflation. This was during a period when the global economy was recovering from the 2008 financial crisis, and international oil prices were relatively low. For Japan, escaping the so-called 'lost 30 years' of prolonged stagnation was the top priority, and Abenomics was able to achieve some results in that context.

In contrast, the current external environment has deteriorated significantly compared to that time. Ongoing wars in the Middle East and Ukraine have driven up international oil and grain prices, and inflation is rampant worldwide. Moreover, Japan recently pledged to invest a massive sum of 550 billion dollars (about 788 trillion won) in the United States as part of its tariff negotiations with the US.

Under these circumstances, implementing unlimited quantitative easing would inevitably cause the yen to plummet. While this would strengthen the price competitiveness of export companies, it would also increase import losses for companies that rely on importing raw materials. In fact, during the Abenomics era, some export companies requested the government to halt unlimited quantitative easing because the import losses for raw materials were too great. Academics warn that no matter how good a policy may be, it must be implemented at the right time and under the right conditions-and now is not the right time.

Concerns Over Weakened Korean Export Competitiveness... Will Beggar-Thy-Neighbor Policies Return?

Yonhap News Agency

The South Korean business community is already concerned about the potential negative impact of Sanaenomics. This is based on experiences from the Abenomics era. In particular, since Japan has succeeded in lowering automobile tariffs first in its negotiations with the United States, South Korea's automobile and export industries are expected to come under significant pressure. If the yen depreciation intensifies, Japan's export competitiveness will be greatly enhanced, inevitably narrowing the position of Korean companies.

Most importantly, from Korea's perspective, a prolonged period of yen depreciation would severely limit the country's ability to manage its currency and interest rate policies. If Japan pushes ahead with ultra-low interest rates, the yen will weaken, and international capital will flow into Japan. This would lead to a simultaneous decline in the value of the won, exacerbating inflation in Korea. Additionally, as prices in Japan become relatively cheaper, more Koreans are likely to travel and spend in Japan, negatively affecting Korea's domestic economy. During the Abenomics era, these were criticized as 'beggar-thy-neighbor policies,' and if repeated, the damage to the Korean economy could be substantial. Economic experts stress that Korea must develop appropriate countermeasures in response.

Beyond economic policy, Prime Minister Takaichi's far-right tendencies and moves to revise the pacifist constitution are also drawing attention as they could become significant variables for South Korea's security situation. One of Takaichi's main campaign pledges is to build a 'strong Japan.' This includes making Japan a country capable of waging war and reorganizing the Self-Defense Forces into a formal military. To achieve this, Article 9 of the Japanese Constitution, known as the pacifist constitution, must be amended. The pacifist constitution stipulates Japan's renunciation of the right to wage war, prohibition of maintaining armed forces, and permanent renunciation of the use of force.

However, an immediate constitutional revision is not expected to be easy. Although the Liberal Democratic Party and the Japan Innovation Party have formed a coalition to launch the Takaichi administration, the Komeito Party, which was previously part of the coalition, has withdrawn. Komeito maintains that the pacifist constitution should be preserved, and its withdrawal was primarily due to the constitutional amendment issue. As a result, the coalition lacks the necessary seats to amend the constitution, and if discussions on constitutional revision intensify, strong opposition is expected from Komeito and other opposition parties.

Nevertheless, there are concerns that the United States is strongly demanding that Japan revise its pacifist constitution. In the event of a conflict in the Taiwan Strait, revising the constitution is essential to enable Japan to deploy troops. Only with constitutional revision would Japan gain the right to engage in warfare and be able to dispatch troops overseas in principle. Against the backdrop of strong US demands, some observers believe that if Prime Minister Takaichi applies strong pressure on the opposition, constitutional revision could become a reality.

If Japan's pacifist constitution is abolished and the country re-arms, this would become a major variable for South Korea's security situation. Until now, most of South Korea's military capabilities have been deployed with North Korea or China in mind, but Japan's military power would also have to be considered. In particular, North Korea continues to launch missiles into the East Sea, and up until now, Japan has refrained from official military responses due to the lack of a formal army. If a military is established, there are concerns that Japan could respond independently, separate from South Korea. Experts emphasize that the Korean government should closely monitor potential changes in Japan and pay greater attention to diplomacy with both the United States and Japan.