‘Mixed bag’: how Japan’s PM-in-waiting may fuel growth, defence – and debt
After the ruling Liberal Democratic Party elects new leader, economists assess what lies ahead
With Sanae Takaichi poised to become Japan’s first female prime minister, economists warn her policies may have “mixed” results: expansionary measures that spur growth but exacerbate fiscal strain, and coalition partners who temper a more hawkish stance on China amid a push for higher military spending.
But a series of offsetting factors suggests that potential growth could come at a price, according to Nick Marro, Principal Economist for Asia at The Economist Intelligence Unit.
“On balance, [it] is a bit of a mixed bag, with the views slightly skewed towards more concerned. Takeshi has strong designs around fiscal stimulus, which could lead to a slightly better growth outlook,” Marro said.
“But what that means is that this is going to lead to a larger budget deficit. It could push up 10-year Japanese government bond yields, meaning higher borrowing costs.”
While Takaichi called last year’s interest rate hike “stupid” and favours a dovish monetary policy, she may not oppose a Bank of Japan increase at the end of October, according to a report by HSBC on Monday. But her election could limit further monetary tightening down the road, the report’s authors said.