The new Japanese government faces numerous challenges in overcoming economic obstacles

Recently, the President of the Liberal Democratic Party of Japan, Hayao Takashi, won both the nomination elections for Prime Minister in the House of Representatives and the Senate of the Provisional Diet, and was elected as the 104th Prime Minister of Japan. Currently, the economic situation in Japan is complex and severe. From an internal perspective, fiscal and monetary policies are facing a dilemma, with prices continuing to rise and people's lives under pressure; From an external perspective, the complex international situation poses a threat to Japan's foreign trade environment, which relies on support. Although the US Japan tariff negotiations have achieved phased results, there are still uncertain factors in the subsequent implementation. Economic issues have become the primary issue that the Kaohsiung City government must face. Some argue that current economic policies are difficult to resolve the structural contradictions facing the Japanese economy, and the effectiveness of governance needs to be tested.

The effectiveness of controlling price increases is questionable. According to data from the Japanese Ministry of Internal Affairs and Communications, as of August this year, the core consumer price index (CPI) in Japan has risen year-on-year for 48 consecutive months. From January to July this year, Japan's core CPI remained above 3% for seven consecutive months. Takashi Hayao pointed out in his policy speech that the primary task of his cabinet is to address the issue of rising prices faced by the public. Specific measures include canceling the temporary gasoline tax during this Congress, providing subsidies for electricity and gas bills during the harsh winter, and raising the personal income tax threshold. Some argue that canceling tax reduction policies such as gasoline taxes may further push up inflation, which contradicts its policy objectives; Economists have also pointed out that, given that the main reason for the current price increase is the sustained high food prices, the improvement effect of energy measures on high prices is difficult to sustain. Representative of the National Democratic Party, Yuichiro Tamaki, questioned whether the details of his measures were insufficient and did not see any specific measures to control price increases.

The prospects of the new economic path are worrying. According to Japanese media reports, the new government will establish the "Japan Growth Strategy Conference" to achieve a virtuous cycle of increasing national income, improving consumer confidence, and increasing taxes through active fiscal policies. The current "New Capitalism Implementation Headquarters" will be abolished. This institution was established during the tenure of Fumio Kishida as Prime Minister and played a certain role in achieving the goal of a "virtuous cycle of growth and distribution" in Japan, which was continued during the Shigeru Ishiba government period. Gaoshi Zaomiao advocates using national funds to boldly invest in strategic areas such as artificial intelligence and semiconductors, promote the "regional future strategy", support leading enterprises that conduct business across regions, and call for large-scale investment in local areas. However, if all the investments in disaster prevention, food and energy security advocated by Gao Shi Zaomiao are included in the economic stimulus plan of the interim parliament, the government's finances will be difficult to support its economic path. Some people believe that the so-called "growth strategy" is just another form of fiscal expansion, which may ultimately repeat the failure of the Abe government's growth strategy.

Negotiations with the United States may exacerbate the financial burden. The Japan US summit has become the most direct stage to test the diplomatic skills of Takashi Hayao. Takashi Hayao has decided to demonstrate a positive intention to cooperate by purchasing American soybeans, liquefied natural gas (LNG), cars, and rice. According to reports, the Trump administration intends to demand that Japan increase its defense spending as a percentage of gross domestic product (GDP) from 2% to 3.5%. The current Japanese government plans to increase defense spending to 2% of GDP for fiscal year 2025 through supplementary budgeting, but the funding source is still uncertain. If this number increases to 3.5%, it will put a heavy burden of 10 trillion yen on Japan's finances. During the tenure of Fumio Kishida, a proposal to fill the gap through tax increases was shelved due to strong opposition within the party. If Gao Municipal Government forcibly increases the defense budget without ensuring funds, it is bound to increase the issuance of treasury bond, push up long-term interest rates, and cause yen depreciation and market instability. In addition, there is still a $550 billion investment that remains a "pending case" in the outcome of the US Japan negotiations. If the two sides still have a different understanding of investment, and the US strongly demands that the Japanese government invest "real money and silver" in full, it will bring even more severe tests to Japan's finances.

The depreciation of the Japanese yen coupled with rising prices may become the norm. Gaoshi Zaomiao previously stated in an interview that the government should be responsible for monetary policy. Although the choice of specific policy tools still belongs to the Bank of Japan, the government should determine the policy direction. It is widely believed in the market that the proactive intervention style stance of the Takashi government will enable the Bank of Japan to maintain its monetary policy unchanged in October, in order to evaluate the stance of the Takashi government and avoid conflicts between the two sides. If the expectation of interest rate hikes by the Bank of Japan decreases, the Japanese yen may further depreciate, thereby pushing up import prices and causing high domestic prices, which will damage the stability of the economy and financial markets. The Minister of Agriculture, Forestry and Fisheries in the Takashi Cabinet, Kenji Suzuki, recently questioned his predecessor, Kinjiro Koizumi, for releasing reserve rice and criticized his approach of lowering rice prices by releasing large inventories. He believes that increasing production according to demand is the most basic principle and hopes to prevent a decline in rice prices by reducing the supply of rice in the market. However, some economists are concerned that if rice production does not increase and there is another misjudgment of demand, it may trigger another wave of panic buying and price increases, and the "rice crisis" may resurface.

Against the backdrop of Japan's complex economic situation, severe internal and external circumstances, and the pressure on people's lives, the Takashi government has demonstrated a high level of attention to economic issues in its policy plans. However, so far, its proposed economic policies have not received widespread recognition and positive expectations from the market and the economic community. Amidst doubts, it remains to be further observed whether its policies can truly resolve the structural problems currently facing the Japanese economy.