The newly elected Japanese Prime Minister, Shigeru Ishiba, recently delivered an inaugural speech, attempting to outline a different Japan in terms of economic, diplomatic, and defense policies. He hopes to achieve structural reforms in politics and the economy through "political renewal," laying a solid foundation for his future governance. However, concerns remain about whether his policy proposals can be smoothly advanced following the House of Representatives election on the designated day.

In the election that day, the ruling coalition consisting of the Liberal Democratic Party and the Komeito Party failed to secure a majority of seats in the House of Representatives. This marked the first time since that year that the Liberal Democratic Party had not been able to win a majority on its own. Shigeru Ishiba stated that he would not resign and would seek cooperation with other opposition parties to maintain the ruling status. He said, "We will do our utmost to achieve our policy goals."

Moreover, the deflationary issues that have plagued the Japanese economy for decades and the social issues that promote economic growth are also challenges that Shigeru Ishiba will need to address in the future. Known as a "second-generation official," Ishiba once said that his family surname made it easier for him to gain votes. So, what kind of future will Ishiba, who unexpectedly won with his prominent surname, bring to the Japanese economy?

Deflation and growth dilemma

Deflation has long been a stubborn issue for Japan's economy. To escape deflation, former Japanese Prime Minister Shinzo Abe initiated a multi-year era of negative interest rates starting from a certain year, employing loose monetary policies to significantly devalue the yen in hopes of stimulating the Japanese economy. However, years have passed, and Japan's economy remains in a state of deflation. The quantitative easing policy of the central bank, involving massive money issuance, has left the Japanese government and enterprises with enormous debts, and Japan's economic growth remains weak.

The International Monetary Fund (IMF) lowered its growth forecast for Japan this year to 0.8% in its World Economic Outlook report released in October, a 0.2 percentage point reduction from its previous estimate. This adjustment is due to the certification test fraud issue involving Japanese automakers, which led to significant factory shutdowns. Analysts predict that this will have a negative impact on Japan's economic growth. Preliminary data for the fourth quarter showed a weak start to the economy, with the Bank of Japan's data indicating that the Composite Index fell below the neutral level for the first time since November last year in October. This reflects a decline in both domestic and international new orders, prompting Japanese companies to reduce manufacturing output and service sector activities.

Research institutions' survey shows that Japanese companies' confidence in the economic outlook for the coming months has weakened, reaching the lowest level since the year. Debt burdens have exacerbated the already struggling Japanese enterprises. After the Bank of Japan raised interest rates in both January and February, the debt servicing costs for companies have further increased. Data released by Teikoku Databank shows that from January to March 2023, the number of Japanese companies tracked by the institution that went bankrupt was 500, an increase of 15.2% compared to the same period last year (434 cases). In March alone, the number of bankrupt companies was 660, marking the 11th consecutive month of year-on-year growth.

Japan's century-old businesses are also experiencing a new wave of "bankruptcy surge." According to data from Teikoku Databank, between January and August, the number of bankruptcies among Japan's long-established companies, those founded or established over 100 years ago, reached 260, approximately double the 138 cases during the same period last year, marking the highest record since the start of data collection in 1999. Some century-old businesses have also proactively closed their doors before declaring bankruptcy, suggesting that the actual number of bankrupt old shops could be even higher.

Japan's government is shouldering an even heavier burden of massive deficits under the pressure of rising bank interest rates, as the debt burden further squeezes fiscal resources allocated to other areas. By the end of the month, the total government debt of Japan, including bonds, loans, and short-term securities, has reached . trillion yen, marking the first time it has exceeded trillion yen. Additionally, issues such as aging and declining birth rates have long been unresolved challenges for the Japanese economy.

The data released recently by Japan's Ministry of Internal Affairs and Communications shows that as of a certain date, the total population of Japan was approximately 126 million, a decrease of 1 million compared to the previous year, marking the 13th consecutive year of decline and the largest drop since statistics began in 1950. Additionally, as of the same date, the population of elderly people aged 65 and above in Japan reached 36.27 million, an increase of 60,000 compared to the previous year, accounting for 29.1% of the total population.

Whether the policy proposition can be realized

In his inaugural speech, Ishiba Shigeru emphasized the necessity of addressing economic deflationary pressures, low birth rates, and population decline, among other social issues. However, whether he can present solutions and achieve results will be crucial for winning public support and establishing his footing.

Ending deflation is the main tenet of Ishi Shigeru's economic policy. In his inaugural speech, he said, "I will decisively end deflation and build a future for our economy." It is evident that the primary task of Japan's future government economic policy is to combat deflation and promote stable economic growth in Japan, reflecting the continuity of his policy with that of his predecessor. However, in terms of what measures to take to end deflation and stimulate economic growth, Ishi Shigeru has his own ideas.

Ishiba Shigeru has his own views on "Abenomics." In his newly published book, he points out the flaws of Abenomics: firstly, it has weakened the yen, resulting in considerable profits for large corporations but without increasing labor productivity or improving the lives of low-income workers; secondly, it has failed to address the issue of economic deflation while also worsening Japan's government finances.

Ishiba Shigeru advocates driving economic growth through increased investment, wage increases, and converting savings into investment, rather than relying solely on finance to address deflation. In implementing specific measures, Ishiba may correct the "Abenomics" route, reform the economic structure, and gradually return to a normal interest rate environment to curb inflation. Additionally, Ishiba promises that the government will improve fiscal deficits and use government spending to help vulnerable groups increase their income, promote consumption, and thereby stimulate economic growth.

The government has formulated a package of fiscal expenditure plans, which will help low-income families address the rising prices of essential goods such as rice and fuel. At the same time, Shigeru Ishiba believes that the government will not eliminate deflation in the short term, and has set a three-year window to gradually resolve the issue of deflation.

The current international political and economic landscape is undergoing rapid changes, and Japan's political arena is experiencing shifts. Whether the economic policies of Shigeru Ishiba will be effective remains to be seen. Analysts believe that, based on his political ideology, Ishiba may avoid drastic reform measures and instead opt for short-term measures to boost consumption and investment, thereby stimulating the economy. Some of his policies will still exhibit the characteristic of "going with the flow." The future implementation prospects of his economic policies require further observation.