(Bloomberg) — Japan’s next Prime Minister Shigeru Ishiba is poised to appoint party veterans to top posts in his Cabinet as he broadly pursues continuity in economic, monetary and foreign policy and prepares for the expected early general elections.
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The new government will officially start on Tuesday after a vote in parliament to confirm the next national leader. The role of finance minister will go to Katsunobu Kato, a former top government spokesman, while Ishiba will name Takeshi Iwaya, a former defense minister, as his foreign minister, public broadcaster NHK and other Japanese media reported.
According to local media, Ishiba is also likely to call national elections for October 27 to try to win a mandate for his government. A survey by the Mainichi newspaper found that 52% of the public was optimistic about the new government.
Ishiba’s surprise victory in Friday’s battle for the leadership of the Liberal Democratic Party reflects an attempt by the party to regain public trust after a fundraising scandal and inflation problems saw outgoing Prime Minister Fumio Kishida’s approval ratings dip plummeted.
Ishiba has consistently been one of the most popular leadership candidates among the public. His distance from previous governments gives him a cleaner image that he can project in elections.
The ruling LDP is unlikely to be ousted in a national vote anytime soon, given relatively low support figures from other parties. The main opposition party has just replaced its leader in an attempt to revive weak levels of support.
Shares in Tokyo fell more than 3% in the morning session Monday as investors factored in the yen’s sharp recovery that followed Ishiba’s surprise victory over Sanae Takaichi, proponent of Bank of Japan easing. It was believed that a Takaichi victory would likely slow or curb interest rate hikes by the central bank, putting pressure on the currency to weaken.
During his leadership campaign, the 67-year-old Ishiba expressed support for the normalization of the BOJ’s policies. In a television interview on Sunday, he said it was important to keep monetary conditions accommodative, suggesting there was no rush to raise borrowing costs.
“I don’t think we should talk about interest rates in a situation where we still cannot say with certainty that deflation has been defeated,” Ishiba said during an interview with Fuji TV.
The BOJ has raised rates twice this year in response to inflationary pressures, but says its policy stance remains supportive of growth. Economists expect the BOJ to raise rates again later this year or early next year.
Ishiba has said his economic priorities are to beat deflation and raise wages while encouraging the revitalization of Japan’s rural areas.
While Ishiba is generally seen as cautious on fiscal policy, he has also expressed support for government spending to supplement private demand. By choosing Kato as finance minister, Ishiba gets an official who is largely aligned with his views. Kato is known for his clear communication and previously worked at the Ministry of Finance.
In a Bloomberg interview last month, Kato said Japan should continue to aim for interest rates and prices that “keep moving.” He said years of stagnant prices and tariffs were “causing structural distortions.” Kato has advocated a balanced approach to managing fiscal health and pursuing growth.
Ishiba will soon face foreign policy challenges after taking over as prime minister, including a sharp deterioration in relations with China following the fatal stabbing death of a Japanese schoolboy in southern China earlier this month. Military tension is also high after a Chinese military plane unauthorized entered Japanese airspace last month.
The first potential trips abroad include an Association for Southeast Asian Nations summit on Oct. 9-11 and a G20 summit in Brazil on Nov. 18-19.
The choice of Iwaya as foreign minister would give Ishiba someone who is also well versed in security matters, having served as defense minister from 2018 to 2019. Another party veteran, General Nakatani, is expected to become defense minister after previously serving in the role for a decade. past.
Ishiba, Iwaya and Nakatani will be tasked with providing further clarity on Ishiba’s calls for Japan to have a more equal military relationship with security treaty ally the US and for the creation of a network of regional security partnerships in Asia similar to NATO.
As a self-proclaimed “defense nerd,” Ishiba frequently raised both ideas during the LDP election campaign.
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