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Kishida’s ‘New Capitalism’

Will Japanese Prime Minister Fumio Kishida be able to push through his vision of ‘New Capitalism’ policies?

Kishida is trying to show a new path to Japan.

In September 2021, former foreign minister Fumio Kishida won the governing party leadership election and replaced outgoing party leader Yoshihide Suga, who left after serving only one year since taking office. As Japan’s 100th prime minister, the low-key former banker was considered the Liberal Democratic Party’s (LDP) moderate voice. Results showed he had more support from party heavyweights, who apparently chose stability over change, as was advocated by vaccination minister Taro Kono. One year into his term, it is evident the new premier is fighting hard to create his legacy and is determined to set right what he sees as policy oversights, political realities notwithstanding.

Kishida is a former banker with a background in corporate restructuring. Over years he has consistently highlighted the problem of growing income disparity in Japan. As premier, he managed to cause palpitations in the investor community during the week of his inauguration itself, with talk of redistributing wealth and raising wages and capital-gains tax. "There will not be any new growth without redistribution," warned Kishida after being nominated as head of the government, triggering shockwaves in the capital markets and the start of the ‘Kishida Shock’ trend on Twitter. Economists applauded, but lobbies became defensive, and markets panicked. The Nikkei 225 Stock Average posted its longest losing streak in more than a decade.

A year since, the Nikkei has largely calmed down while the Prime Minister seems to have gradually dialed back on some of his more strident opinions. However, his overall position has remained consistent, and his efforts appear to be aimed at achieving whatever he can in within the window of opportunity his office provides him. Kishida continues to promote a “new form of capitalism” that he says will address inequality and climate change.

As PM, Kishida has consistently called for growth and distribution under his concept of “new capitalism,” saying that the economy under Japan’s longest-serving Prime Minister Shinzo Abe failed to truly benefit the public at large. Abenomics—a strategy named after the former prime minister and free-market stalwart Shinzo Abe—created a series of public spending plans, lowered taxes for companies, and supported the fall of the yen. Thanks to this, larger companies saw significant profit growth and the main Tokyo Stock Market indices resurged during the 2010s.

But many experts say Japanese households have not benefitted from this economic growth. If pay growth has slowed down in most developed countries, it has been largely nonexistent in Japan. More and more workers are employed, not for permanent contracts, but for minimum wage jobs with little protection; the current minimum wage is at ¥930 ($6.52).

Without unions willing to defend them and no majority brave enough to confront big corporations, young workers and women have especially suffered silently in a system that tends to reward seniority. Many young people say they opt to not have children because they are afraid they won't be able to afford to raise them. During the first half of 2022 the country of more than 125 million residents recorded an unprecedented low new-birth rate of 385,000 births, the lowest in two decades.

Kishida, who has a habit of pulling out a notebook during speeches to refer to grievances and comments he’s heard from constituents, says voters feel left behind by former Prime Minister Shinzo Abe’s growth-focused policies. While he remains faithful to some aspects of Abenomics, such as the Bank of Japan’s 2 per cent inflation target, he has long pushed for an end to US-style, markets-first policies.

“Disparities and poverty have expanded because of overreliance on markets,” Kishida said in early days at his New Year speech. “Under a new form of capitalism, rather than leaving everything to the markets and competition, the important thing is for public and private-sector entities to play roles together.” This may be seen as part of a larger global phenomenon, with world leaders such as Joe Biden and Emmanuel Macron facing similar public discontent. After all the pandemic has been a cruel period for many and has laid bare differences between those with steady income and insurance coverage vs. those with unstable employment.

To halt this cycle, Kishida has suggested a new form of capitalism that is more suited not only to Japanese society but to the post-covid world at large. He began with suggesting mentioned a tax increase for the highest incomes, a taxation on some stock market profits, an adjustment of the minimum wage, and exemptions for companies that agree to increase employee salary levels.

Politics is a game of balancing voter expectations with hard reality, and the pushback to PM Kishida’s initial vision and the adjustments apparent in the year since are testament to this truth.

Opponents, particularly those in financial markets, have derided Kishida’s ideas as repackaged socialism. Investors were particularly upset by Kishida’s suggestions of higher taxes on capital gains. Hiroshi Mikitani, the billionaire founder of Rakuten Group Inc., summed up the attitude of many in this camp when he tweeted, “New capitalism = socialism”.

With a key national election coming up, Kishida made an effort to reassure critics and overseas investors during a speech on May 5 in London’s financial district. He described himself as the first post-war Japanese prime minister with experience in financial markets and stressed his commitment to a “robust economy supported by the animal spirits of the private sector.” At the cabinet reshuffle in August, he assigned key posts to lawmakers loyal to deceased premier Shinzo Abe, conveying that he is not turning his back on proponents of aggressive monetary easing, which is a key pillar of Abenomics. The cabinet-approved policy paper that emerged recently appears to avoid mention of any specific measures that could be construed as socialist or anti-market.

That doesn’t mean the new prime minister is giving up just yet. At his speech at the New York Stock Exchange on September 22, Kishida pitched his plan to make NISA — Japan’s tax-free savings account program — permanent to draw more individual assets into markets. Kishida said his "new form of capitalism" economic policy is a "two-way strategy," referring to Japanese-born Major League Baseball star Shohei Ohtan-- "to not hit and pitch, but to promote growth and sustainability," adding that he is "resolute in my ambition to make Japan as prosperous and energetic as the New York of my childhood, and he NYSE itself."

Japan’s working-age population is set to fall precipitously in coming years, while the costs of caring for an aging population continue to rise. Economists’ projections show South Korea and Taiwan overtaking Japan in nominal per capita gross domestic product within this decade. Kishida says his policies will foster a more diverse and productive workforce to “produce maximum value with a shrinking pool of workers.”

Meanwhile public support for the Japanese Prime Minister is plummeting over his party's ties to a controversial religious group and the government's response to rising prices. Support for the cabinet fell 14 percentage points to 43 percent in a Nikkei poll published Sunday, the lowest level since he took office last October. The disapproval rate rose 14 points to 49 per cent.

There are some positives for the seasoned lawmaker. With no national elections scheduled for the next three years, Kishida has the political breathing space to address not only policies that provide short-term respite and boost ratings, but also longer-term systemic issues such as worker discontent, stagnant wage levels, and other issues at the heart of his “new capitalism” policy.

Three years is a lifetime or few in politics. Nobody knows this better than the current prime minister. It remains to be seen if his decades of experience in Japanese politics allows him to maneuver beyond battling immediate emergencies such as reputational repercussions from LDP’s ties to the Unification Church and the mixed public response to his decision to hold state funeral for slain former Prime Minister Shinzo Abe. He certainly seems to up for the good fight—to remake capitalism into a system that is kinder to all.

(Richa Jayal is a senior researcher on India-Japan affairs, and an entrepreneur in linguistics. She has worked for Goldman Sachs, and is a graduate of the Jawaharlal Nehru University and Osaka University).

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