Tetsushi Takahashi was Nikkei's China bureau chief from April 2017 to March 2021 and the writer for the Beijing Diary column.
TOKYO -- When you read "Kishida Vision: From Division to Collaboration," a book published last year by Fumio Kishida, Japan's new prime minister, you find many references to the importance of fiscal discipline.
"I think Japan needs to continue to demonstrate at home and abroad that the state's stance and the administration's guiding principles are heading toward fiscal soundness," Kishida writes.
To be sure, he shows a willingness in his book to tolerate big spending to cope with the crisis brought on by the COVID-19 pandemic. Responsible fiscal policy "does not mean that the current [annual] budgetary spending of more than 100 trillion yen ($898 billion) will be cut forcibly," Kishida says elsewhere.
Nevertheless, he consistently advocates nursing Japan's ailing finances back to health.
Kishida also included "firmly maintaining the banner of fiscal soundness, while aiming for the normalization of the economy" in his policy pledges announced ahead of the ruling Liberal Democratic Party's presidential election in September.
But his biggest promise during the leadership contest was to enact a new economic stimulus package worth "tens of trillions of yen." He also hinted at postponing the target for reaching a primary budget surplus at the national and local government levels by the end of fiscal 2025. With these caveats, the "banner of fiscal soundness" looks completely fuzzy.
Japan's finances remain mired in red ink, with the combined long-term debts of the national and local governments exceeding 1,200 trillion yen. But Prime Minister Kishida is now saying little about fiscal soundness despite it supposedly being dear to his heart.
Has he flip-flopped on the issue?
I recall a remark made by former Japanese Prime Minister Kiichi Miyazawa, who became finance minister in Prime Minister Keizo Obuchi's cabinet in 1998. Miyazawa said at the time: "Fiscal reconstruction should be achieved after the economy has gotten back on a recovery path."
Miyazawa called himself "a Keynesian who has come late," repeatedly implementing massive fiscal spending measures and piling up debt. Miyazawa hailed from the LDP's Kochikai faction, which Kishida currently leads. Kochikai was founded in 1957 by Hayato Ikeda, who served as prime minister between 1960 and 1964. Miyazawa was the fourth prime minister who hailed from that faction. Kishida is the fifth.
Ikeda announced his bold "Income Doubling Plan" in 1960 and succeeded in putting the Japanese economy on a high growth path. Emulating Ikeda, Japan's new prime minister has made "the Reiwa Era Income Doubling Plan" his signature policy. There is no doubt that Kishida is very aware of the traditions of his political grouping.
So what are the traditions of Kochikai? A quick look back at Osamu Shimomura, a former Finance Ministry bureaucrat who served as an economic adviser to Ikeda, offers clues. Shimomura played a central role in compiling the original Income Doubling Plan.
Shimomura was known as a Keynesian economist. The ideas of John Maynard Keynes, the renowned British economist who called for governments to create demand through government spending, were present from Kochikai's inception.
Kishida appears to carry some of this Keynesian DNA, advocating for "a shift away from neoliberalism." Neoliberalism adopts a laissez-faire stance, that is, that governments should not interfere in the functioning of the economy. It is poles apart from Keynesianism.
To reach the goals of the Reiwa Era Income Doubling Plan, Kishida stresses the importance of redistributing wealth: The government will intervene to transfer part of the wealth of the rich to lower and middle-income groups. This is, in part, what Keynes sought to do as well.
Will the inauguration of the Kishida government mark a turning point in Japan's economic policy? Will the country move away from its previous goal of reducing the government's role in the economy and toward the Keynesian model of intervention to achieve desired outcomes?
The first litmus test of Japan's future economic policy will be the package of a stimulus package worth tens of trillions of yen by the end of the year. It should be examined thoroughly. If it pours money into areas that promote growth -- which is also needed in order to redistribute wealth -- rather than just spending money for its own sake, Kishida's Keynesian government will be welcomed.