Japan’s new leader Ishiba to face challenges dissenting from Abe’s legacy

Shigeru Ishiba, the man set to become the next leader of Japan, has made a career as a political outsider and opponent of party orthodoxy. However, some experts doubt that the former defense minister will manage to govern as such.

The seasoned politician who won his fifth bid to become the head of the Liberal Democratic Party on Friday has long been a critic of former Prime Minister Shinzo Abe and his legacy of “Abenomics” commonly defined by loose monetary policy, fiscal stimulus and structural economic reforms such as tax cuts. 

Ishiba, on the other hand, has shown support for increasing taxes and fiscal tightening while also having opposed the Bank of Japan’s long-held policy of negative interest rates that started under Abe.

“The legacy of Shinzo Abe is still enormous, and how to engage with that legacy and whether it’s time to course correct became a defining question in the LDP race,” said Tobias Harris, founder and principal of Japan Foresight.

The election ultimately came down to a runoff in which Ishiba defeated economic security minister Sanae Takaichi, who presented herself as the more Abenomics-aligned candidate. Japan’s parliament is expected to formally vote Ishiba into the role Tuesday.

“Based on what he’s said in the past, he appears to be a leader with a new mindset and vision for the country,” said Sayuri Shirai, professor at Keio University and a former BOJ board member, adding that Ishiba and Takaichi had represented very different wings of the party.

But the economist said there’s still a lot of uncertainty about whether Ishiba can actually follow through with some of the outsider policies and philosophies that have defined his political career. 

In a press conference soon after his victory, Ishiba indicated to reporters that Japan’s monetary policy should remain accommodative to the economy in a statement that could signal a break with past support of interest rate hikes.

He also reportedly suggested he would follow Prime Minister Fumio Kishida’s approach of trying to pull Japan out of years of deflationary pressures. While Japan reported an inflation rate of 3% in August, the idea that it struggles with deflation is tied to low domestic demand, according to Shirai.

“This concept of deflation is a continuation from Abenomics through Kishida’s term. As long as they continue to say this, it suggests that the BOJ will need to keep very low interest rates for a very long time,” she said. 

Regardless, Japan stocks fell on Monday as traders reacted to the election, with some experts predicting it will clear the way for the BOJ to further raise rates. Japan’s benchmark Nikkei 225 logged its worst day since 1987 soon after the BOJ increased rates at the end of July.

Experts…