Takanomics? The Takaichi trade? Sanaenomics?
There is no consensus yet on what to call the global investor moment spurred by Liberal Democratic Party President Sanae Takaichi’s election as Japan’s presumptive next prime minister.
The need for a label harks back to the Abenomics era of late Japanese prime minister Shinzo Abe — and on the surface, there are lots of similarities. The come-from-behind victory of the market-friendly candidate who catches global attention. The re-emergence of figures such as Etsuro Honda, the visionary who advised Abe and is now doing the same for Takaichi, and the willingness to put public pressure on the Bank of Japan (BOJ).
So far, so familiar, but this moment is no Abenomics 2.0, and what is more, that is just fine.
For starters, Takaichi has a much weaker hand to play than her mentor did. True, Abe was elected in 2012 while the customarily ruling LDP was in opposition, but the writing was already on the wall for the Democratic Party of Japan’s flailing government. Within months, Abe swept a general election that gave him a strong mandate for change.
By contrast, the new party leader has been left with one of the poorest positions imaginable. The LDP is a minority in both houses of the Japanese Diet. Takaichi’s confirmation as prime minister by parliament is being delayed until at least Tuesday next week, and if talks with longstanding coalition partner Komeito break down, it could even lead to a restructuring of the political landscape. In any event, in the absence of a new coalition partner, she would have to strike individual deals with opposition parties just to keep the lights on.
DIFFERENT PRIORITIES
In Abe’s day, he was responding to public outcry for change to shake up an economy suffering from not just chronic deflation, but the double whammy of the post-global financial crisis of 2008 downturn, and the 2011 tsunami and nuclear disaster.
Takaichi’s priorities must be elsewhere. The LDP president has talked up easy money and economic growth policies, which the stock market loves. However, the biggest issue on voters’ minds is inflation, particularly at the supermarket checkout. She must devise quick wins to ease pressure on low-income households — while also avoiding falling back into deflation. She would have to thread a needle on immigration, by being seen to tackle rulebreakers while continuing to boost foreign labor to cope with shortages. Grand growth visions would have to wait.
However, the biggest difference is Japan itself. Abe inherited a country full of potential but dealing with vast structural issues. Japan was criminally undervalued in 2012, from corporates to property; the problems faced today are far less acute, and valuations reflect that. The yen was trading around ￥77 to the US dollar, and the uproar was about how strong the currency was as exporters failed. The massive weakening that resulted was welcomed. That would not be the case now; if anything, Takaichi must try to strengthen it.
There are things she can draw from. Abenomics was, above all, a masterful piece of public relations to attract foreign money. It had a catchy name, and a simple concept; anyone could understand the metaphor of the three arrows, flimsy on their own but strong together, for the more nebulous concepts of combining monetary and fiscal policy with reforms. Takaichi should take inspiration from the public relations standpoint.
WHAT JAPAN NEEDS
Like Abe, she should not be afraid to have sharp elbows. We saw an example of that in her adviser Honda warning the BOJ away from a rate hike this month. One of the late prime minister’s early bold moves was the 2013 joint government-BOJ statement that set the current 2 percent price target. She should quickly move to update that and get BOJ Governor Kazuo Ueda on the same page.
It is unknown what policies Takaichi would pursue. It is hard to do bold things with the Japanese Ministry of Finance clutching the purse strings and party kingpin former Japanese prime minister Taro Aso watching over her shoulder. Nonetheless, her pro-growth attitude would at least be an improvement on recent administrations.
Most importantly, Japan is not in need of another short-lived Abenomics moment. That era needed the shock and awe of the BOJ’s monetary easing “bazookas” to reignite global interest and rekindle animal spirits. However, that is not what the country needs now, when corporate profits are at record highs, unemployment near historic lows, and the looming issue is how to address a labor crunch with a public wary of immigration.
Takaichi likes to declare that “Japan is back,” but as I wrote recently, that is the wrong idea; its global relevance has rarely been higher. What is needed now is not the Abenomics bazooka, but a well-placed arrow: targeted, smart growth policies.
Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. He previously led the breaking news team in North Asia, and was the Tokyo deputy bureau chief. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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