Shares in Tokyo recently rose on expectations that conservative Japanese lawmaker Sanae Takaichi, elected as Japan’s first prime minister on Tuesday, will double down on pro-market policies, including big defense spending and cheap credit.
The benchmark Nikkei 225 index climbed close to the symbolic 50,000 level, rising 0.7% to 49,517.57. Takaichi, a motorcycle and heavy metal enthusiast, won the lower house election with 237 votes, more than the 233 votes needed to win.
Here’s what to expect from what has been dubbed Sanaenomics.
Inflation and wages are the biggest concerns
The increase in consumer prices exceeded the Bank of Japan’s 2% limit of 2.5% to 3%. Thus, the central bank gradually raises interest rates from long-term levels near or below zero. Wages remain almost the same as they were 30 years ago, only in 2024. exceeded for the first time in 1997 average level. Meanwhile, the low exchange rate has helped keep the Japanese yen weak against the dollar and fueled inflation, as much of Japan’s food consumption is imported.
“I want to focus on the issue of rising consumer prices first,” Takaichi told reporters after being elected head of the ruling Liberal Democratic Party earlier this month, putting her in line to replace outgoing Prime Minister Shigeru Ishiba.
Takaichi indicated that he does not support raising interest rates. The promise of continued cheap credit is one of the reasons why share prices have risen. But keeping interest rates low will hamper efforts to curb inflation and strengthen the Japanese yen.
Echoing many of the promises of her predecessors, Takaichi also promised to raise wages, without saying how she plans to do so.
Coping with demographics
Japan’s population has been shrinking and aging rapidly for years, creating a labor shortage and undermining the country’s potential economic growth.
Although she is an outspoken conservative on many social issues, Takaichi said she favors tax breaks for companies that provide childcare for their employees and possible tax credits for family expenses for childcare.
It is unclear what else the government could do under any leader to combat the low birthrate, which in part reflects the financial strain of raising and educating children when wages do not keep up with inflation. It also reflects a company culture that is not conducive to family work-life balance.
Following in Abe’s footsteps
Takaichi is expected to emulate the policies of his late mentor, former Prime Minister Shinzo Abe. He resigned in 2020, and in 2022 was killed. His “abenomics” approach included promises to inject cash and increase government spending despite a national debt that is nearly three times the size of the economy.