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New Economy Minister Faces Rocky Path

March 17, 2016
Originally published in Global Finance Magazine

With Japan still struggling to achieve economic lift-off, longtime Liberal Democratic Party (LDP) hand Nobuteru Ishihara took over as the country’s Economy minister in late January.

Will Nobuteru Ishihara rise to the challenge?

Prime minister Shinzo Abe named Ishihara to his cabinet after his predecessor, Akira Amari, resigned amid a bribery scandal. Despite Tokyo’s aggressive “Abenomics” policies, Japan hasn’t been able to escape low inflation and weak growth.

Ishihara’s appointment comes at difficult time for Japan, and observers wonder how effective he’ll be. “Ishihara has considerable experience as a cabinet minister in the LDP government,” notes Rajiv Biswas, Asia-Pacific chief economist for IHS Global Insight. “However, his experience in economic and fiscal policy is limited, and he has a difficult task ahead due to the significant headwinds facing the Japanese economy.”

According to Seijiro Takeshita, professor at the School of Management and Information of the University of Shizuoka, Ishihara is “used to the spotlight and a very well known figure.” But, he adds, the new minister is prone to gaffes, and it is not clear how much support he enjoys even within his own party.

In the end, however, none of this may be relevant. “The good and bad about Japan is that government ministers don’t matter much; the economy is run by bureaucrats,” Takeshita says. “So much of what a minister can achieve depends on his ties with bureaucrats, and I think Ishihara is on good terms with them.”

It’s imperative that he hit the ground running, as several key issues require urgent attention. “He has to manage fiscal policy to ensure that the high level of Japanese government debt is on a sustainable path, and to stabilize the fiscal deficit,” says Biswas. Ishihara must oversee the next phase of a sales tax increase in April 2017. He needs to forge ahead on structural reforms.

Finally, the new Economy minister must finesse domestic and international reaction to the Bank of Japan’s recent decision to bring interest rates into negative territory. “Investors are rushing back to safe havens, back into the yen,” says Takeshita. “This could have very negative connotations for Japanese markets and exporters.”

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