Japan — New leadership to continue ‘Abenomics’ pro-growth policies

The ruling Liberal Democratic Party elected Yoshihide Suga as Japan’s new prime minister in mid-September following the resignation of Shinzō Abe due to poor health. Suga has pledged to continue the economic policies of his predecessor, known as “Abenomics”, to revive growth. Since 2012, accommodative monetary policy, fiscal stimulus and structural reforms have been successful in raising asset prices, weakening the yen and boosting GDP growth.

However, the COVID-19 crisis has pushed Japan’s economy into recession. Japan recorded a third straight quarter of economic contraction in the June quarter, registering a 7.9% decline in real GDP from April to June. Official Japanese government forecasts estimate that the real economy will contract 4.7% in FY2020 (ending March 2021) and then recover to 3.3% growth in FY2021.

Japan has made significant progress on structural reforms in recent years, including liberalising the agriculture sector, increasing immigration and raising female workforce participation (Chart). Such reforms were facilitated by political stability under Abe. Suga has strong support in public opinion polls, providing him scope to keep policy settings stable moving forward. This will support economic recovery in Japan, which is Australia’s second-largest export market (exports totalled $60.6 billion in 2019, 12% of total exports, and about 3% of Australia’s GDP).