How Japan’s new prime minister is jolting markets

0:01NPR

0:11Japan's economy has been going sideways since the 1990s. Economic growth was barely there, and it was even grappling with deflation, you know, prices falling. But now, for the first time in about 30 years, inflation has started to bite. And that's helped pave the way for a new prime minister with a colorful and radical streak. In October, Sinai Takeichi became leader of the Conservative Liberal Democratic Party, or LDP. She was soon sworn in as Japan's first female prime minister. In one of her early speeches, she said she's throwing away the phrase work-life balance for herself.

0:59She's saying she's throwing away the work-life balance and she would work and work and work. Yes, and Aya Takeji is a little hardcore. As the most indolent member of the Indicator staff, I simply cannot relate. Her secret is, true story, drumming heavy metal. She was also a TV personality and has sung karaoke in front of the nation.

1:25Takeichi is nationalistic and telegenic. So naturally, she and U.S. President Donald Trump got along famously when Trump visited Japan in October. She presented Trump with a gold leaf golf ball and a putter that belonged to the late Japanese Prime Minister Shinzo Abe, who was her mentor. Less positive is Takaichi's relationship with China. Beijing is steaming after her comments on Taiwan. And on Japan's ailing economy, Takaichi's moves have been no less bold. This is The Indicator from Planet Money. I'm Darian Woods. And I'm Weyland Wong. Today on the show, Sanaionomics. We visit the world's fourth largest economy and learn how Sanai Takeichi wants to fix it.

2:13This message comes from Warby Parker. Prescription eyewear that's expertly crafted and unexpectedly affordable. Glasses designed in-house from premium materials starting at just$95, including prescription lenses. Stop by a Warby Parker store near you. Support for NPR and the following message come from Edward Jones. A rich life isn't always a straight line. Unexpected turns can bring new possibilities. With a hundred years of experience navigating ups and downs, Edward Jones can help guide you. Let's find your rich together. Edward Jones, member SIPC. This message comes from Capital One. Capital One offers checking accounts with no fees or minimums.

2:56What's in your wallet? Terms apply. See CapitalOne.com slash bank for details. Capital One N.A. Member FDIC. To better understand whether Sinai Takeichi can reinvigorate the Japanese economy, we have to first make a diagnosis. And we can read Japanese economic indicators all day. Lost 30 years of basically flat incomes, the yen falling. But what does it feel like to live in Japan right now? We hit the streets of Kobe, one of Japan's large cities. Hi, my name is Julie Nguyen. Julie works at a mental health clinic. Things are a bit tight financially recently. I just got divorced and I'm raising four kids and I work for a part-time job.

3:45Julie wasn't happy about rising prices. Everything's increasing so much, like groceries, electricity, like just basic costs for a living. We also spoke with Kanoa Konda, a grad student at Kobe University, and she echoed this complaint. I wish life prices going high. So did Yukihiro Imanari, an advisor at a science and policy network. Basically, we have enough money to live, but you fear the rise of the prices. The people we spoke to had their own views of what they were hoping for from the prime minister. Support for working mothers, more money for scholarships, avoiding immigration crackdowns.

4:29Sounds awfully familiar. Yeah, things like child care, college costs, immigration, and of course, the cost of living. That was the common thread. So what could Sonaya Takeuchi do to combat price rises? As we've talked about before, most economists would agree that politicians don't actually hold the big lever to fight inflation. That's primarily the responsibility of the central bank. Raising interest rates to slow down borrowing and spending in the economy and bring down inflation. So step number one is to get out of the way of the Bank of Japan. The Bank of Japan has been slowly raising interest rates from basically zero, where they were for about two decades.

5:08Yeah, for decades they were struggling to get any inflation and, you know, a small amount is good for an economy. And that return to lifting interest rates has been called normalization. Fumi Gotto is a lecturer in East Asian political economy at the University of Sheffield. The Prime Minister wants slower pace of normalization. Basically, Takaichi wants lower interest rates than the central bank does. Lower interest rates would be the opposite of what's needed to curb inflation. Sure, it could mean cheaper mortgages or car loans, but all that extra borrowing by people and businesses would mean more spending, which would lead to higher prices.

5:47We asked Fumigato whether the prime minister could influence the central bank in Japan. There may be some kind of theoretical independence, but I think it's difficult for the central bank to directly go against what the government wants. It's difficult for the Bank of Japan to go against what the government wants, partly because there's government representatives actually sitting at the table when the central bank makes its decisions. Yeah, those eyeballs are kind of quite intimidating. Oh, yeah. So even though the Bank of Japan is legally independent from the government, the reality is more complex.

6:22You often see the two coordinate policies. So Fumi thinks it could be possible that Takeichi's preferences for lower interest rates could be taken into account. Politicians can do more than get out of the way of the central bank. They can also make the central bank's job easier by taking their foot off the fiscal accelerator. That's step number two. basically pulling back on spending or taxing more, less borrowing. The current administration is more interested in fiscal expansion and then strengthening the military. So the opposite of cutting back. In November, Takaichi's cabinet approved a$135 billion stimulus package.

7:04That means more borrowing and spending. Broadly, this kind of borrowing and spending worsens inflation. There is a third step that could reduce inflation, and that's if Japan's productivity increases. Productivity could be the skeleton key that unlocks not just stable prices, but increased wages too. So it's important. One way to increase productivity could be to invest in infrastructure or industries that allows Japan to make more stuff or be more efficient. Fumi says Takeichi is trying to spend more money to make Japan's exports more competitive in certain industries like semiconductors. So the result of this is to be seen.

7:44Another potential way to increase productivity is increased immigration, bringing more skills and ideas and labor that could grow Japan's businesses. But Fumi says Takeichi is a nationalist, so that's not her first instinct. She would like to restrict the influence of immigrants. So overall, Sunai Takeichi seems like a bold leader, but not one that follows economic orthodoxy. She wants lower interest rates, more spending, less immigration. That explains why investors aren't convinced. The day that Takeichi's big stimulus package was announced, the Japanese Nikkei stock market fell 2.5%. And interest rates on loans to the Japanese government are even higher than they were in the 2008 financial crisis.

8:29The everyday people we heard from in Japan didn't vote for Takeichi directly. Japan has a parliamentary system, so you vote for parties and representatives, not for prime ministers. But these people in Kobe had their views. Julie Wen, the mental health worker and mother, had positive first impressions. She seems strong and reliable. So yeah, hopefully she can help families or working moms. But we also need to see how she actually does. Kanukonda, the graduate student, was more circumspect. I don't know. It's not going to really directly affect my final situation. And Yukihiro Imanari, the science and policy advisor, was less of a Takeichi supporter.

9:24In fact, he was worried. I'm a little bit afraid of this person because I see her on the far right wing of WDP. Because I'm Japanese national, I think I will be fine, but my wife is a foreigner. I could imagine that at some point I would say, oh, let's go away from this country. I cannot do for you anymore. Overall, though, Sinai Takeichi's rambunctious approach is winning over Japanese voters. Takeichi's administration now enjoys around a 70 % approval rating. But with inflation showing no signs of slowing down, we'll see how long that lasts. This episode was produced by Angel Carreras, Catherine Yang and Corey Bridges with engineering by Kweisi Lee and Sina Lafredo.

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