In the fourth reshuffled Abe cabinet launched on Oct. 2, the key officials for economic policies – Finance Minister Taro Aso, Economic Revitalization Minister Toshimitsu Motegi, and Minister of Economy, Trade and Industry Hiroshige Seko – were retained. Facing mounting issues, including the tense international situation resulting from the Trump administration’s protectionism, fiscal restructuring, and the consumption tax increase, the cabinet is attaching importance to continuity. The new cabinet will have to work on all these issues promptly.
Relations with U.S.
An agreement was reached at the Japan-U.S. summit on Sept. 26 on starting negotiations for a bilateral trade agreement on goods (TAG). The Trump administration is expected to demand the liberalization of the market for agricultural products and autos by threatening to impose additional tariffs on imported cars.
Motegi will be facing off with USTR Robert Lighthizer in substantial ministerial talks. While it is said that the two have built a good relationship through repeated discussions, Motegi will need to be a tough negotiator in order to safeguard Japan’s interests while maintaining the Japan-U.S. relationship.
Agricultural products will be a major topic in the TAG negotiations.
The U.S. is expected to strongly demand tariff reduction, particularly on beef, since it is now at a disadvantage compared to Australia and other countries after withdrawing from the TPP.
New Minister of Agriculture, Forestry, and Fisheries Takamori Yoshikawa was an officer of the Liberal Democratic Party (LDP) working team on agricultural cooperative reform who worked on coordination with the JA Zenchu (Central Union of Agricultural Co-operatives) and the enactment of the relevant laws. His skills in domestic coordination in the agricultural products sector are likely to be put to the test immediately.
The government intends to strengthen economic ties with China on the occasion of the 40th anniversary of the conclusion of the Japan-China Treaty of Peace and Friendship this year. However, there are many issues with China, such as excessive subsidies to domestic industries and violation of intellectual property rights. Seko agreed to work toward rectifying unfair trade practices at a recent meeting with U.S. and EU trade ministers, making the comment that “Japan will take the lead in rule-making for the world in the new era.”
Fiscal restructuring is also an urgent issue. The government’s debt has reached over 1,000 trillion yen and continue to grow. By 2022, a large number of baby boomers will begin to reach the age of 75 years old, moving into the advanced old age bracket, which will entail a sharp increase in medical, nursing care, and social security expenditures. How to control the ballooning of the social security budget, which takes up one-third of annual expenditures, will be an issue from now on.
The consumption tax rate will be raised to 10% in October 2019 to fund social security. The FY19 budget will include economic measures to prevent an economic downturn.
Aso stated on Oct. 2: “We need to think of ways to deal with a last-minute surge in demand before the tax increase, the decline in demand after the tax hike, and other issues.” With the House of Councillors election taking place next year, ruling party members are advocating a substantial economic package. An initial FY19 budget of over 100 trillion yen has become a real possibility.