By Makoto Hara, senior staff writer
Discussions over the true worth of Abenomics aside, it was undeniably the reason behind the record longevity of the Abe administration. Although Prime Minister Yoshihide Suga says he will follow Abe’s footsteps including Abenomics, his path may not be exactly the same as his predecessor’s. For one thing, their economic philosophies are quite different.
The basis of Abenomics was a reflation policy, where the government’s aggressive monetary easing would trigger inflation and activate consumption and investment, thereby reviving the economy. Therefore, the goal of Abenomics was to achieve economic conditions where the price of goods and services gradually rise.
Suga, however, is heading in the opposite direction. An analysis of his past economic policies reveals a strong tendency and desire for bringing down prices.
As Parliamentary Vice-Minister of Land, Infrastructure and Transportation, Suga advocated the reduction of the ETC fee on the Tokyo Bay Aqua Line expressway. As Minister of Internal Affairs and Communications, he called for a reduction of the NHK reception fee as well as the introduction of the hometown tax, known as the Furusato Nozei, which in effect reduces the local income tax.
As Chief Cabinet Secretary, Suga led an effort to significantly reduce cancer drug prices. The GoTo Travel program, also led by Suga amid the pandemic, is a system to discount accommodation fees by 35%. In August, the measure helped push the consumer price index up by 0.4% from the same period of the previous year. We could name his policy “Suga deflation” as opposed to “Abe reflation.”
When the economy is healthy, prices go up; when it is slow, prices come down. Abe’s reflation argument, which was aimed at “pushing up prices to revive the economy,” ran counter to this common sense economic principle. And the seven years of unconventional monetary easing never achieved the Bank of Japan’s target of 2% inflation.
Compared with this, Suga’s approach of cutting cell phone fees to boost demand is much easier to comprehend.
Only his method may be problematic. The way Suga’s government pressures companies to cut fees is reminiscent of China’s state-run economy.
In a democratic and capitalist society, the government should not be able to exert its will on the market, businesses, and consumers. If it wishes to lead the country in a certain direction, it should achieve that in accordance with rules and laws.
Suga’s Kantei [Prime Minister’s Office] appears to have inherited the previous administration’s desire for steamrolling without following the proper, albeit cumbersome, procedures. This is worrisome.
Suga must have learned from Abe the importance of a weak yen and high stock prices. Blessed with the two, the Abe administration was able to maintain strong support from the people for a long time.
According to a source, Suga also worries about the yen strengthening. When the yen rapidly appreciated, then-Chief Cabinet Secretary Suga strongly pressed the Finance Ministry for yen-selling intervention until a ministry official convinced him that the U.S. would not consent.
The Suga administration will not let the Bank of Japan stop its radical quantitative and qualitative monetary easing designed to achieve a weaker yen and high stock prices. Suga will likely pick and choose from Abenomics what suits him, even though its underlying philosophy is very different from his own.
The large-scale purchase of government bonds by the BOJ is a perfect example. Abenomics was, in a sense, a modern alchemy in that the endless printing of money covered the deficits in the government’s coffers. Suga will never let go of this magic wand.
Alchemy, however, is eventually exposed. In an ideal world, Abe’s successor would have realized this and led the country out of the irregular fiscal and monetary policies.
Suga, however, appears to be willing to inherit from Abenomics this magical remedy with its enormous risk. This is procrastination of an unprecedented scale and a great misfortune for the Japanese people.