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Japan after Abe

All Abe's men: Japan's economy ministry sidelined under Suga

Policymaking dynamics shift as new prime minister pushes reform agenda

Prime Minister Yoshihide Suga is removing officials that gave the Ministry of Economy, Trade and Industry outsize influence in his predecessor's administration.

TOKYO -- Japan's Ministry of Economy, Trade and Industry, a dominant force in policymaking under Shinzo Abe, is set to see its influence diminished under new Prime Minister Yoshihide Suga.

Suga's appointments on Wednesday to top posts in the prime minister's office included the replacement of Takaya Imai, a former economy ministry bureaucrat, with an official hailing from outside Japan's political nerve center. Meanwhile, Hiroto Izumi, who has supported Suga for many years, was reappointed as a special adviser to the prime minister and will be entrusted with general policy coordination.

Imai -- a close confidant to Abe who reportedly was deeply involved in policy decisions -- was one of several senior officials with ties to the economy ministry that gave the body outsize sway in what some called the "METI cabinet." His removal represents a deliberate pivot by Suga away from what he sees as an obstacle to much-needed reform.

Under Abe, the ministry essentially held the reins of influential advisory bodies such as the Council on Investments for the Future. As a result, little progress was made with reform in policy areas under the ministry's umbrella even as other growth strategies were embraced.

The ministry's Small and Medium Enterprise Agency, for example, has consistently tried to shield the country's 3.58 million small businesses, which critics say has contributed to the country's chronically low productivity growth.

Last year's basic policy on economic and fiscal management included a call to boost the national average minimum wage to 1,000 yen ($9.40) an hour "at an early stage." As chief cabinet secretary, Suga said raising the minimum wage was "extremely important" and advocated a 5% hike, based on comments by private-sector members of the government's Council on Economic and Fiscal Policy.

But the economy ministry opposed such a move. "The fact is that small and mid-size businesses are doing everything they can and strained to their limits with the current pace of hikes," then-Minister Hiroshige Seko argued.

High-level officials with economy ministry backgrounds advised caution toward minimum wage increases, and Abe tended to favor that side of the argument.

But for Suga, higher minimum wages and a change in the government's approach are necessary to achieve his goal of revitalizing regional economies.

"We can't move forward without a stronger foundation," he told Nikkei in an exclusive interview while running for leader of Abe's Liberal Democratic Party. He suggested that he would be open to rethinking the legal classification of business size based on employees and capital.

"If consolidation is necessary, then I want to do it in a manageable way," he said.

The influence of the "METI cabinet" was felt in foreign policy as well, in issues including economic diplomacy with Russia.

The Abe government sought to use large-scale economic cooperation to smooth the way for negotiations toward resolving a long-standing dispute over the southern Kuril Islands. Abe in 2016 offered an eight-point proposal for economic cooperation to Russian President Vladimir Putin, under which Japanese companies participated in liquefied natural gas development in the Arctic Circle.

The prime minister's office and the economy ministry also took the lead in Japan's row with South Korea over restrictions on exports of semiconductor materials.

When asked in a debate during the leadership race whether he would have the Foreign Ministry take its customary central role in foreign policy, Suga responded that he would take a "whole-of-government" approach while receiving reports from the ministry and working with the foreign minister.

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