How the new Japanese premier promises a “new capitalism”

Japan’s new prime minister, Fumio Kishida, has sold his plan to redistribute wealth in the country as the “new capitalism”.

But some critics on social media suggest the plan sounds more like socialism to them, even dubbing it Japan’s “common prosperity”, referring to a key policy of the Communist Party of China.

“Do you at least understand how capitalism works?” Hiroshi Mikitani tweeted, the CEO of Rakuten, the huge Japanese online retailer and answer to the retail giant Amazon.

Mr. Mikitani was particularly angry at the prime minister’s proposal to raise the capital gains tax (CGT); the government levy on the profits made from investments, calling it “double taxation”.

The Rakuten boss wasn’t alone in expressing his dislike of the controversial new proposal, many feared it could quickly wipe out a recent wave of new equity market interest from small retail investors.

In Japan, the election of a new prime minister traditionally kicks off a stock market rally, but instead the arrival of Kishida in October (ahead of the lower house elections) saw the Nikkei 225 promptly sink.

The index fell for eight consecutive days, a decline that has now been labeled “the Kishida shock”.

In response, Mr. Kishida quickly backtracked on his CGT proposal, saying he would not seek to change the country’s taxes on capital gains and dividends for now.

Aside from this embarrassing turnaround, there is already a stark contrast between Kishida’s style of economic policy and the approach of his predecessors; Yoshihide Suga and Shinzo Abe.

The pair both pushed Abenomics, the now famous economic policy known for its so-called “three arrows”: aggressive monetary easing, fiscal consolidation and growth strategy. Their purpose was to use these three levers to rock the Japanese economy from decades of slow or no growth mode.

During the tenure of these two leaders they have had some success: the country’s stock market has more than doubled in value. When Abe became the country’s prime minister for the second time in December 2012, the Nikkei 225 was under 10,000 yen. In February of this year it surpassed 30,000 for the first time since 1990.

The Nikkei took three decades to recover from the collapse of the late 1980s that resulted in decades of economic decline for the country.

However, there are some harsh critics of the Abe strategy – including Mr. Kishida – who argue that Abenomics only made the rich richer in Japan. They want to see wealth distributed among the population more widely.

Despite all the hype and international attention surrounding Abenomics, ordinary citizens haven’t felt much benefit from politics. Some say it has even caused the wealth gap between rich and poor to widen. (This despite one metric, the Gini coefficient – which measures inequality in income distribution – has declined slightly over the past decade.)

One of the reasons people don’t feel they have more money in their pockets is because the average salary has barely grown over the past three decades.

Average wages in Japan remained stagnant compared to countries like the United States and Germany over the past three decades, according to data from the Organization for Economic Co-operation and Development.

There has also been limited progress in productivity metrics, Japan’s per capita gross domestic product – which is a country’s per capita economic output – has fluctuated, but is now at the same level as in 1994.

In his first political speech in parliament, Kishida repeated the word “bunpai” or “distribute” 12 times. By comparison, Mr. Abe used “seicho” or “growth” 11 times and Mr. Suga said “kaikaku” or “reforms” 16 times.

But there are economists and investors who believe that Kishida’s harsh criticism of Abenomics was just a ploy to win voter support before the general election and that there will be no radical changes.

“I doubt he fully explained his economic policies. But looking at who he appointed – Ms. Takaichi as head of politics and Mr. Amari as general secretary – indicates that Abenomics will likely continue under Mr. Kishida,” says the investor. Aya Murakami.

Sanae Takaichi was a contender in the ruling party’s leadership race, backed by former Prime Minister Shinzo Abe, while Akira Amari was economy minister under Abe and one of the architects of Abenomics. Mr. Amari has been a controversial appointment since he was embroiled in a corruption scandal in 2016 and after losing his polling station in this weekend’s election, he reportedly offered to resign from his post.

Whether Japan returns to Abenomics or not, now that Kishida is in office the most pressing question will be how to handle the growing discontent among Japanese workers?

Several Japanese publicly traded companies have made record profits in recent years, leading to criticism for not returning any of these earnings to their hard-working employees with commensurate wage increases.

“Japan’s growth has not been strong enough to distribute wealth,” according to investor Ms. Murakami. “They have made profits abroad, not at home, so it is very difficult for companies to distribute them [this money] when the profits were not generated nationally, “he adds.

It supports the recent proposal by the party’s head of politics, Ms. Takaichi, to tax companies that are hoarding money. “At the moment, there are 2,500 companies listed on the Tokyo Stock Exchange, but more than 10% of them have cash and deposits above their market capitalization, or have cross-holdings,” says Murakami. “They should be encouraged to invest that money to stimulate growth at home through fiscal policies.”

When Kishida was elected leader, he promised to “hear the voices of the people,” but backtracked on his plan to raise less capital gains taxes in just a couple of weeks. So, it remains to be seen which voices now – those of investors or workers – he will choose to hear more closely, to set the tone for his policy.