Takaichi’s Long-Term Vision May Fail to Dispel Inflation Angst

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Or sign-in if you have an account.Sanae Takaichi Photographer: Kiyoshi Ota/Bloomberg Photo by Kiyoshi Ota /Bloomberg(Bloomberg) — Japanese Prime Minister Sanae Takaichi’s long-term vision for powering the nation’s growth through domestic investment risks becoming a hollow ambition if she fails to address shorter-term angst over the cost of living.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountTakaichi has rolled out an unprecedented plan to generate ¥370 trillion ($2.3 trillion) of domestic investment over the next 14 years during the first parliamentary session since her landslide election victory. That blueprint, which aims to deliver 3% nominal annual growth, underscores her intentions to use her supermajority in the lower house of parliament to build a transformative legacy for the nation. But there’s less clarity on how much the government will need to contribute to support this vision and where that money will come from. The same goes for a likely sales tax cut and increased defense spending. Those questions are feeding into market concerns about the finances of the nation.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe premier can point to a list of successes over the months since her landslide electoral triumph. She has successfully navigated a summit with US President Donald Trump and largely limited further fallout with China, following her remarks on Taiwan last year. Takaichi has helped secure alternative oil supplies for Japan to limit the impact of the Middle East conflict and visited countries across Asia and Europe to encourage stronger defense ties and equipment purchases. She’s also launched an intelligence agency while ramping up scrutiny of foreign investment in Japanese companies among 64 bills passed into law during the parliamentary session.But her soaring public support is starting to cool rapidly as she is seen by voters as focusing too much attention on pet interests and distant future targets, rather than the here and now. That impression has been strengthened by the hasty passage of legislation to shore up the male-dominated imperial line, ban desecration of the national flag and establish a back-up capital city. “Her main areas of interest are areas like defense, investment and economic security,” said Izuru Makihara, a professor of politics at Tokyo University. “Issues like people’s livelihoods and alleviating the burden on households do not seem to be her core interest.”She’ll need to change tack if she hopes to stick around as prime minister beyond her term as the ruling party’s leader through September next year and push through her lofty ambitions.The latest parliamentary session ended Saturday, about a week later than originally scheduled. It was convened in February shortly after Takaichi and her ruling Liberal Democratic Party won a supermajority in the lower house, securing the country’s biggest mandate since World War II.Instead of sweeping draft legislation through parliament with ease, Takaichi has encountered hurdles in the upper house, where the ruling coalition still lacks a majority. The vote on creating the backup capital in case Tokyo suffers a natural disaster only squeaked through the upper house by two votes.In a press conference on Monday, Takaichi defended her record and said she was very much focused on people’s livelihoods, in contrast to her predecessor a year earlier. She said at that time young people had “lost their dreams” for the future.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.She said her energy subsidies and cash handouts had helped households. She pointed to the current level of inflation at 1.7% as the lowest among Group of Seven nations and real wage growth of 1.8% as the highest.But the one issue on which voters sought quick and clear action — a reduction of the sales tax on food — made slow progress as she opted for multiparty talks that failed to reach a consensus.“Lawmakers are just bickering among themselves while they are not making progress on issues affecting people’s daily lives and wallets,” said Katsuhiro Yoneshige, of JX Press Corp. A full reduction in the tax on food to zero would cost around ¥5 trillion a year in lost revenue, according to the Finance Ministry. In June, the LDP chair of the committee recommended lowering the tax to 1% with an amount equivalent to the tax burden of the final 1 percentage point delivered to low-income households in handouts.Takaichi is set to order her party to start drafting legislation to that effect later this week, according to local media reports. Still, there remains no explanation of how the loss of tax receipts will be covered.Likewise questions surround the funding of increases in defense spending with the government already well below its 2% of GDP target if compared with the current size of the economy. And that’s before considering the possibility of raising spending in the direction of NATO’s 3.5% goal.An alternative strategy for reducing the cost of living pain for households would be the more conventional approach of letting the central bank tighten policy, but investors continue to suspect that Takaichi wants the Bank of Japan to proceed slowly.“Ultimately, the most effective measure against rising prices is for the BOJ to raise interest rates,” said Daisuke Karakama, chief market economist at Mizuho Bank. This would also help relieve pressure on Japan’s feeble currency. “The success of future measures to combat inflation hinges on whether the BOJ can steadily raise interest rates.” A recent draft of the government’s economic and fiscal plan fed into market fears that Takaichi is still wanting the BOJ to go slowly. Another jump in longer-term bond yields and a drop in the yen after that draft was publicized prompted the government to add a reference acknowledging the central bank’s independence.Takaichi acknowledged that communication with the market was the one thing she could have done better since her election victory.But she also needs to spot the early signs of voter discontent and prevent doubts about her leadership from growing within the party.“There was a period where people were able to give her a lot of leeway. She’s popular. She’s more charismatic than other prime ministers,” said Rintaro Nishimura, senior associate at Asia Group. “I don’t think that same leniency exists say in the fall or next year. And that’s where I think these problems might compound.”—With assistance from Alastair Gale and Akemi Terukina.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.