Yoshihide Suga assumed the mantle of Japanese prime minister in September. While the political message is continuity from Shinzō Abe’s administration, there are underlying hopes for a resurgent Japan. Can Suganomics offer stability while rebooting Abenomics and the Japanese economy?
Who Is Suga?
Known as a fixer, Prime Minister Suga was Abe’s longest-tenured chief cabinet secretary and right-hand man. Suga has a reputation for efficiency and deregulation—a positive for an economy that needs structural reform. During his time in government he has already lowered mobile phone prices once, overhauled the inbound tourist visa process and implemented a hometown tax rebate program.
Suga inherited Abe’s Liberal Democratic Party (LDP) presidential seat and parliamentary term, which expire in September and October 2021, respectively. Because of this, there are concerns that Suga may be perceived as a caretaker PM. While we believe there is clear incentive for Suga to call snap elections before next October to consolidate political power, he would do so without the political base of his predecessor. Unlike Abe, who was part of a political dynasty, Suga comes from humble beginnings—his parents were strawberry farmers.
Political continuity and consistency have been and will continue to be important for Japanese markets. Prior to Abe’s record tenure of just over seven and a half years, the prime minister’s office had a revolving door—the average PM lasted only 382 days—and the instability proved difficult for Japan’s economy and markets. Suga runs the risk of becoming the eighth PM since 2000 to last less than 500 days in office.
The Legacy of Abenomics
The three arrows of Abenomics—monetary easing, flexible fiscal policy and structural reform—have had varied levels of success. A couple of them worked, until they didn’t.
While Japan no longer suffers from deflation, thanks to quantitative easing, no one would call Abe’s average core inflation rate of 0.68% a roaring success. Fiscal stimulus initially increased economic growth, but two consumption tax hikes dampened sentiment, eventually muted growth and then COVID-19 amplified deficits. And structural reform started on the back burner but eventually came down to mildly effective labor market reform designed to increase women in the workplace and a free childcare policy designed to boost birthrates.
Still, Abe accomplished some major milestones: successful trade negotiations with the European Union as well as the Trans-Pacific Partnership, reigniting the Japanese stock market while devaluing the yen and simultaneously increasing GDP.
One of Abe’s most meaningful moves was to overhaul the gargantuan but staid Government Pension Investment Fund (GPIF). The result was a change from ultraconservative investments with a hyperfocus on safety and Japan-based assets to a modern allocation that includes approximately 50% global stocks and bonds—and better potential returns.
This move has not only allowed the $1.6 trillion (169 trillion yen) GPIF to access higher global yields, but along with other Japanese pensions, financial institutions and retail investors, it has made Japan one of the largest buyers of global assets. By December 2016, for example, Japan was the single largest investor in Australian government bonds, holding a full third of all Aussie bonds outstanding and making Japan an important investor in markets worldwide (Display).
