Japan LDP Leadership Candidates Show Divide Over Fiscal Policy

(Bloomberg) -- The nine candidates vying to become Japan’s next leader differed over the urgency of restoring the nation’s fiscal health in a leadership press conference Friday that focused heavily on internal party matters.

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While many of the contenders emphasized the need for targeted spending to help low-income households deal with rising prices, some of them flagged the need for more restraint.

“It’s necessary not only to achieve a primary balance but also to restore fiscal discipline,” said Digital Transformation Minister Kono Taro, the candidate who has expressed the most concern about national finances during the race so far.

Sanae Takaichi and Takayuki Kobayashi, two political hawks in the race, flagged the need to keep the focus on economic growth.

Shinjiro Koizumi, one of the frontrunners in public opinion polls, said that while the economy appears to shifting to a growth phase, it was necessary to consider expanding benefits for those on low incomes.

Economists, investors and Liberal Democratic Party members are still trying to unpick the key policy differences among the candidates in the most crowded leadership election in the ruling party’s history. The winner is almost certain to become prime minister given the LDP’s majority in parliament.

The vacancy emerged after Prime Minister Fumio Kishida announced last month that he would stand down at the end of his three-year term. His public support has languished at low levels amid frustration over the cost-of-living crunch and a party funding scandal. The need to clean up the image of the party was a key theme for much of the press conference.

Like many countries, Japan spent heavily during the pandemic to support those in need, worsening the nation’s debt load, which was already more than twice the size of its economy. A jump in tax receipts as the economy recovers and inflation takes hold has put the government on track to balance its budget, excluding debt servicing by the next fiscal year.

Still, managing the nation’s debt load will take on increasing significance with the Bank of Japan set to continue raising interest rates over the medium term. Debt-servicing costs already chew up almost a quarter of the annual budget.

Kono cited rising interest rates as a key consideration for reining in spending. He said he was opposed to raising the consumption tax to increase revenue but added some government-funded projects should be cut.

Takaichi, a supporter of easy monetary policy and Japan’s current economic security minister, said the elderly, those with disabilities and people struggling with hormonal imbalances needed to be supported through the social security system.

“I believe it is an important responsibility of the government to provide benefits to those who are truly in need,” said Takaichi, who has been picking up public support according to one opinion poll published by NNN News on Friday.

Kobayashi said the priority should be boosting economic growth and incomes, rather than worrying about national finances.

“The economy is more important than fiscal consolidation,” Kobayashi said.

Koizumi highlighted the need to offer more support for pensioners and those running small businesses who are struggling with rising prices.

“This is one of the reasons I have said that when I become prime minister, I will order the putting together of an economic package,” Koizumi said.

A Bloomberg survey of economists conducted Sept. 6 to Sept. 11 found that 69% of respondents thought Koizumi would win the Sept. 27 election.

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