Japan’s Ishiba Faces Crunch Over Budget, Meeting With Trump

(Bloomberg) -- Japan’s Prime Minister Shigeru Ishiba sought support for his minority government with the opening of parliament on Friday, as he aims to pass a record ¥115.5 trillion ($738 billion) annual budget and navigate ties with the new US administration.

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In a speech to reiterate his policy priorities, Ishiba touched on Japan’s problems with a shrinking population, tepid regional growth and an unstable security environment.

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“To create a new Japan, we must focus on being sustainable and independent. That requires a fundamental change in our values,” he said.

Ishiba’s more immediate challenge is securing enough votes to pass the annual budget.

Since ceding seats in a general election last October, Ishiba’s coalition government has been forced to negotiate with smaller opposition parties to try and win enough support for the budget for the fiscal year starting in April.

Ishiba is also aiming to make a trip to the US in early February to hold talks with President Donald Trump amid the prospect that Japan may get caught up in another global trade war over tariffs.

In the speech, Ishiba reiterated that the Japan-US alliance is the foundation of Japan’s diplomatic and defense policy, emphasizing that the alliance must weather challenges as the balance of power in the region undergoes “historical changes.”

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“We must retain the US commitment in this region by further deepening Japan-US cooperation and ensuring a power vacuum doesn’t cause instability,” he said, an apparent reference to concerns about the US playing less of a global security role under the Trump administration.

It’s a critical period for the prime minister, who faces sliding public approval ratings and needs to look ahead to an upper house election in July, in which the economy and inflation are likely to be topics on voters’ minds.

A rate hike by the Bank of Japan on Friday signaled that mild inflation is here to stay along with the likelihood of more expensive housing loans. A government survey released last week showed that 70% of respondents were unhappy with rises in prices.

“We plan to improve economic productivity and increase people’s incomes, with wage hikes that keep up with inflation as a starting point,” Ishiba said in his speech.

Before the summer election, a key test of Ishiba’s leadership will be his ability to reach an agreement with one of the opposition parties to pass the budget before the end of March. One sticking point has been the level of a new ceiling on tax-free income.

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The small opposition Democratic Party for the People wants a much higher ceiling than the Liberal Democratic Party-led coalition is currently offering in return for support for the national budget.

While the DPP supported an earlier spending package and extra budget in return for a commitment to raise the ceiling, Ishiba’s coalition is concerned about giving too much ground for a measure the Finance Ministry claims could cost up to ¥8 trillion ($50 billion) in lost tax revenue.

The prolonged disagreement over those plans has opened the possibility for Ishiba to try and seek support from the Japan Innovation Party. The ruling bloc has promised to consider some of the Osaka-based party’s proposals, including making high school education free for all students.

Ishiba is already a step behind one of his predecessors in dealing with Trump. Former Prime Minister Shinzo Abe quickly developed a rapport with the US president by visiting him before the start of his first administration.

While policymakers, business executives and members of his own party will closely monitor Ishiba’s success in dealing with Trump, the Japanese public may remain more concerned about prices and pay. Still, Ishiba will at least need to give the impression he can protect Japan’s interests when dealing with Trump to avoid his diplomatic efforts adding to downward pressure on his support rating.

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The prime minister is also under pressure from some hawkish members of the LDP who disagree with a recent decision to loosen visa restrictions on visitors from China, part of a thawing of relations between the two Asian giants.

--With assistance from Alastair Gale.

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