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Japan's Suga backs Kuroda to keep monetary policy ultra-easy

Potential Abe successor seeks to revive SME sector and promote digital reforms

Chief Cabinet Secretary Yoshihide Suga, a candidate to replace Shinzo Abe as prime minister, speaks with Nikkei in his office in Tokyo on Saturday. (Photo by Kento Awashima) 

TOKYO -- Yoshihide Suga, the favorite to become Japan's new prime minister, backed Bank of Japan Gov. Haruhiko Kuroda, making it likely monetary policy will stay ultra-easy should he become the nation's next leader.

The chief cabinet secretary of Prime Minister Shinzo Abe's administration said in an interview with Nikkei on Saturday that he "highly appreciates" the massive quantitative easing program Kuroda has maintained since becoming governor in 2013.

"I have been involved in monetary policy issues since the selection of the BOJ governor," Suga said. "I want to inherit the current framework."

Kuroda, a former vice finance minister, was hand-picked by Abe to lead the monetary policy part of his economic plan known as Abenomics. This year, Kuroda's BOJ has further strengthened its program, expanding purchases of corporate bonds, doubling equity buys and pledging to buy government debt without limit.

Suga also vowed to amend the Small and Medium Enterprise Law, stressing he will prioritize efforts to help smaller businesses. He said he is considering a new policy framework to promote the consolidation of the SME sector.

In Japan, SMEs are defined as companies with capital of up to 300 million yen ($2.8 million) and a payroll of 300 or less. An enterprise that exceeds the definition of an SME as a result of a merger or an acquisition will be considered a large company and may not be eligible for tax breaks or other relief measures.

"We want to make it possible to reorganize SMEs if necessary," Suga told Nikkei.

Relevant ministries are working on new frameworks to eliminate concerns held by smaller businesses about "graduating" from SME status to help stimulate the sector. Some experts have pointed out that the government has been overprotective of the sector, resulting in a loss of competitiveness and stifling innovation.

Suga also said he is looking at creating a new government agency to coordinate digital policy, and tasking it with the mission of upgrading the nation's digital capability. The coronavirus pandemic has exposed shortcomings in this area.

"All policy programs related to digitization are going to be overseen in one place," Suga said.

One issue that requires urgent policy action is the "My Number" social security and tax number system, Suga said.

The system is meant to enable government services and activities, such as benefit payments and tax collection, to be carried out more efficiently. But use of the system is not mandatory, and only 20% of the population has signed up to the program, meaning it could not be used to distribute benefits during the pandemic. This has invited criticism that the government is slow to respond to crises.

Suga said he will put together a policy package and get it enacted by the end of the year.

Suga also promised to support efforts to expand online health care and remote education, saying he wants to make temporary measures used during the pandemic permanent.

While small clinics and other facilities have criticized this plan, Suga said, "I understand there is some opposition, but we'd better make up our mind and do it."

Suga has been a staunch advocate of reopening the economy after the first COVID wave between March and May. Japan's economy contracted sharply when the government requested people to stay at home and work remotely in an effort to contain the spread of the virus.

The subsequent wave of infections between July and August posed the difficult question of keeping the virus at bay without again shutting down economic activity.

Suga emphasized that his government would give priority to economic recovery.

"I want to put an end to the coronavirus pandemic and allow the country to move onto the next stage," he said.

The immediate policy priority will be to extend the work protection subsidy program, Suga said, adding that he will carefully evaluate the need for an additional stimulus package.

One way to stimulate the economy is a government-backed domestic travel campaign. Tokyo will be included in the "Go to Travel" subsidy program once the virus outbreak subsides in the capital, Suga said. The campaign was launched before the vacation season in July, but has so far failed to have a big impact because Tokyo had to be excluded from the program amid the resurgence of infections there.

Suga emphasized the need to diversify supply bases for essential items, such as face masks and medical equipment. Supply of such items currently depends on China. "The supply networks need to be reviewed," he said.

"Amid the coronavirus crisis, I have been surprised by how many things are dependent on other countries," said Suga. He was referring to the case of Nissan Motor, which has had trouble obtaining the necessary components.

Applications by companies for the government subsidy to move production out of countries such as China to Southeast Asia exceeded the original budget for the fiscal year ending March 2021. Suga said he would "decide the extra budget after reviewing the overall picture."

Regarding economic national security, or economic statecraft, Suga said he would continue the current policies, on which he has been working with Abe. The National Security Secretariat will lead the government discussions on this issue, he said.

Suga touched on the issue of selecting a new chief cabinet secretary, who serves as a key deputy of the prime minister. The responsibility includes hosting press conferences twice a day as government spokesperson, coordinating intergovernmental issues and appearing before parliamentary committees. "All these responsibilities need to be considered in making the appointment," Suga said.

The 71-year-old eight-term member of the lower house of parliament has declared his candidacy to succeed Abe as the leader of the ruling Liberal Democratic Party. The election is set to take place on Sept. 14, and the government is expected to convene a special parliamentary session two days later to elect a new prime minister.

The ruling coalition led by Suga's Liberal Democratic Party is in a position to elect its leader as prime minister because of it has a majority both houses of parliament.

The election follows Abe's announcement on Aug. 28 that he will step down after nearly eight years in office, the longest in modern Japanese history.

The race is expected to be fought between three contenders: Suga, former Foreign Minister Fumio Kishida and former Defense Minister Shigeru Ishiba. The winner will serve out the remainder of Abe's term as party chief through September 2021.

The government, meanwhile, needs to call a general election by October 2021 when the four-year term of lower house Diet members ends.

Additional reporting by Mitsuru Obe.

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