Leo Lewis
Japan has abruptly entered an ideological contest between two economic visions: Abenomics and Takanomics. The confrontation is especially striking because it does not involve traditional political rivals. Instead, Prime Minister Sanae Takaichi is challenging the economic legacy of her former mentor, Shinzo Abe.
Takaichi built her political career through a close association with Abe, learning from him and adopting much of his political language. Many therefore assumed she would revive his mix of massive stimulus, a weaker currency and policies designed to pull Japan out of deflation. Her recent decisions suggest the resemblance was more political than economic.
Takaichi has unveiled a strategy to direct $2.3tn in public and private investment into 17 strategic sectors by 2040. The list includes artificial intelligence, data centres and video games, but notably excludes the car industry despite its central role in Japan’s economy.
The government has not explained how the investment will be divided between public and private funding. That uncertainty has unsettled markets. Investors are asking whether Takaichi intends to loosen fiscal policy too aggressively, how far government bond yields might rise and what could reverse the yen’s decline to multidecade lows.
The clearest response came from Finance Minister Satsuki Katayama, who suggested that Japan’s major pension funds should increase their exposure to domestic assets. That includes the $1.81tn Government Pension Investment Fund. Markets understood the implication: buy more Japanese government bonds.
The proposal goes beyond routine portfolio rebalancing. It resembles verbal intervention in the bond market by a government anxious to prevent the 10-year yield from moving above 3 per cent. Katayama also raised the possibility of allowing individuals to hold government bonds in tax-free Nippon individual savings accounts.
Abe introduced those accounts to encourage Japanese households to move cash savings into riskier assets. They were not designed to become repositories for government debt. This is where the fundamental divide between the two economic systems becomes clear.
Abenomics placed corporate governance at the centre of its programme. It raised standards for companies and investors, empowered shareholders and tolerated activism. Despite his ideological convictions, Abe did not believe the state should direct every economic decision. His approach assumed that stronger governance and market forces could allocate capital in Japan’s interests.
Takanomics restores the government to the centre of that process. It assumes companies should invest according to a national plan. Shareholders who regard markets as better capital allocators than governments could increasingly be treated as obstacles rather than partners. Political pressure on pension-fund decisions also recalls an era when institutional independence was fragile.
The same concern applies to efforts to steer household savings toward the bond market. Such a policy risks treating citizens as instruments of economic management rather than investors entitled to pursue their own interests.
Both Abenomics and Takanomics have an internal logic, despite their contradictions. Takaichi’s approach may ultimately prove suitable for Japan, but it has yet to demonstrate that. What is already clear is that this is not a revival of Abe’s programme. It is a break from it—and the tensions seen so far may be only the beginning.
Source: Financial Times