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Miscalculation of the balance of the economy and “Kovid” hasten the ouster of prime minister Soga Japanese

Yoshihide Suga
Yoshihide Suga

Japanese Prime Minister Yoshihide Suga’s decision to step down as leader indicates a failed bet that limiting the impact of COVID-19 on the economy will provide him with public support and time to materialize his green and digital goals.

After less than a year in business, he left Suga with some big promises on the table, but very small successes in the real economy. He has struggled to balance economic needs and contain the pandemic, and his lack of interest in price dynamics has helped push inflation below zero, despite promising to continue with his predecessor’s Abenomics program to revive inflation.

Since the beginning of last September, Suga has given the impression that he is a man of detail rather than a charismatic leader with a comprehensive macroeconomic vision.

Seeing how slow Japan’s heavy administrative system was to dispense funds to counteract the effects of the pandemic in 2020, Suga insisted he would expedite moves to digitize central and regional governments and the economy. But his digital agency only launched this week. The same problems online and staff capacity seen last year contributed to the initial slowdown of the vaccination programme, with some local governments preferring a commitment to work in mail format rather than a laptop or phone.

Putting more money in people’s pockets made more sense to him than raising inflation. The weight of domestic travel subsidies and his desire to lower mobile phone charges weighed heavily on prices, pushing Japan’s CPI into negative territory while the rest of the world headed in the opposite direction.

It is possible that Suga saw the Tokyo Olympics as a way to symbolize the successful handling of the virus, and stuck to the plan adamantly. But the recent fluctuation around and then the re-imposition of relaxed emergency rules helped add to the number of infections that led to the banning of nearly all spectators from attending the event, and the frustration and suffering of bar and restaurant owners.

The failure to organize the world’s largest sporting event in the event of an emergency may also have contributed to a less cautious attitude among the people, as many of them have ventured outside, leading to record Covid cases being recorded across the country.

Suga’s departure has left his larger goal of moving the economy to a more sustainable future, with few specifics on how Japan will achieve carbon neutrality by 2050.

Economist Yuki Masujima from Bloomberg Economics.

“With the economy facing increasing pressure from the Delta outbreak, the government – led by Suga or otherwise – is likely to feel strong pressure to raise fiscal stimulus to continue the recovery. As for monetary policy, any change in the leadership of the LDP is likely to do little to alter the dynamics in the government’s relationship with the Bank of Japan.”

 

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