Amid expectations of impending tax hikes and a strong currency, stocks fell on Monday, coinciding with the announcement by Japan’s new prime minister, Shigeru Ishiba, that he intended to hold early elections for October 27.
Ishiba has stated that “there is room” to boost corporation taxation and supports the Bank of Japan’s push to raise interest rates. He was scheduled to be formally installed as premier on Tuesday following his victory in the ruling party’s leadership contest.
Right-winger Sanae Takaichi was the clear favorite to win the Liberal Democratic Party (LDP) leadership race on Friday after markets closed. The LDP has ruled virtually continuously for decades.
The possibility of Takaichi winning pushed equities higher and the currency down since she is a supporter of former prime minister Shinzo Abe’s unconventional “Abenomics” economic policies, which include ultra-low interest rates and tax cuts.
An ardent patriot, Takaichi would have been the first female prime minister in a nation where men still control industry and politics.
Ishiba, 67, is a harsh critic of Abe, and the yen surged to almost 142 per dollar from about 146.50 after his dramatic triumph on his fifth try. On Monday, investors sold off their stocks, with exporters suffering the most.
The Nikkei index ended the day lower by 4.8%, with Toyota falling 7.6% and Mitsui Fudosan, a real estate company, falling 8.7%.
Ishiba stated on Monday that it was “important for the new government to be judged by the people as soon as possible,” confirming media speculation that he intended to seek early elections for October 27.
Elders in the LDP are counting on Ishiba, a self-described defense “geek” who enjoys building model ships and aircraft, to increase the party’s standing.
Under departing Premier Fumio Kishida, the party’s poll numbers plummeted due to a damaging slush fund scandal and public outrage over price increases.
links to defense
Ishiba pledged on Friday to strengthen defense connections with neighbors alarmed by recent Chinese measures and to rebuild trust in the LDP following the incident.
According to media reports, he is thinking of naming Katsunobu Kato, a former chief cabinet secretary who participated in the LDP leadership contest, as finance minister.
The sources stated that Takeshi Iwaya, another experienced former defense minister, will take over as foreign minister and Gen. Nakatani, a seasoned veteran, will return to his previous position.
Amid concerns about China’s ascent and North Korea’s unpredictability, Kishida promised to quadruple defense spending and strengthen military ties with the US and other partners in the area.
Ishiba supports the formation of a “Asian Nato” and has stated that Japan need to retaliate more forcefully when China or Russia violates its airspace or maritime borders, as has been the case in recent weeks.
However, there are also concerns about how the government intends to finance the modernization and find enough military recruits from Japan’s declining population.
Ishiba has so far concentrated on ways to strengthen public finances in Japan, which has one of the greatest debt mountains in the world, according to Taro Saito, senior economist at NLI Research Institute, who spoke to AFP.
According to Saito, “he doesn’t seem to be as interested in policies that promote economic growth, even though low growth—rather than fiscal health—is what matters most for Japan.”
Yoshimasa Hayashi, the chief cabinet secretary, who is supposedly going to stay under Ishiba, said the administration would “make judgments with calm heads” on Monday despite declining to comment on the stock market slump.
He declared, “We will continue to closely monitor developments in the domestic and international financial markets with a sense of vigilance and, while closely collaborating with the Bank of Japan, we will do our best in managing the economy and finance.”
