Hello from Tokyo. Exactly 50 years ago, Japan was hit by an oil crisis triggered by an export embargo that drove up energy prices, with the entire country working hard to conserve fuel and electricity. Now, while the Israel-Hamas war shakes the Middle East, Japan, which still relies heavily on oil imported from the region, is bracing for a continued rise in energy costs and other prices.
Prime Minister Fumio Kishida's government has already implemented a policy to subsidize gasoline prices, but ministries are also hurrying to finalize another stimulus package for this month. One of the pillars appears to be tax cuts. For many people, that sounds like an abrupt change of gear, as the government was about to discuss tax hikes to fund increased defense spending and measures to counteract a declining birth rate.
Behind this, of course, is the inflation that Japan's people are beginning to feel for the first time in decades. Until recently, the biggest challenge facing the Japanese economy was deflation, and the main goal of Abenomics and subsequent economic policy had basically been to battle falling prices. In particular, the Bank of Japan played a major role in this fight through the ultraloose monetary policy of former Gov. Haruhiko Kuroda.
In times of a cost-of-living crisis, tax cuts are always a favorite strategy for politicians, and some in Japanese politics are now even calling for cash handouts as well. That's understandable given that Kishida is likely to continue exploring the best time to call a snap election. But for the BOJ, the task is not as easy. Kazuo Ueda, Kuroda's successor, has to tackle this new challenge of inflation despite inheriting Abenomics, which had combating deflation at its heart.
Turning to the Israel-Hamas war, Asian countries' responses have been mixed. Kishida's initial reaction was remarkably neutral, calling for restraint on both sides while condemning the Hamas attacks on Israel. Only on Thursday did the Japanese government spokesman describe Hamas' actions as acts of terrorism.
Japan is known for its unique approach to the Middle East peace process. When I spoke to government officials who have been observing the situation since January, their thinking was basically similar to what Gideon Rachman of the Financial Times wrote in a recent article: "[Israeli Prime Minister Benjamin] Netanyahu's entire strategy towards the Palestinians now looks like a failure." I think that's the basis for Kishida's initial neutral reaction. Meanwhile, another big global player, China, still appears hesitant to show a clear stance.
One of the geopolitical risks in East Asia is the Korean Peninsula, and the unpredictable situation there is the subject of an upcoming movie. The South Korean mockumentary "2035" revolves around the reunification of the peninsula after a fire breaks out on the border. Despite the current frozen state of inter-Korean relations, the director believes in the possibility of unification, drawing parallels to the fall of the Berlin Wall in Germany.
Wishing you a wonderful weekend!
Shin Nakayama
Editor-in-chief, Nikkei Asia
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