Takanomics vs Abenomics: the $2.3tn prizefight
Japan’s new prime minister has broken with her mentor by encouraging firms to invest according to a government plan
Leo Lewis
© Maria HerguetaQuite suddenly, and with indecently little warning either to itself or the outside world, Japan has rung the bell on an ideological prizefight.
One way or another Abenomics vs Takanomics will end in a knockout.
The unexpectedness of the mentee-on-mentor showdown derives from what everyone thought they knew about Sanae Takaichi.
Takaichi’s ascent was engineered, over decades, through deliberate association with, apprenticeship under and political mimicry of the late Shinzo Abe: a popular nationalistic reformer who staked his leadership on monster stimulus, a soft currency and exit from deflationary quicksand.
So when Takaichi campaigned big on reflationary policies, constitutional amendment and even hinted at the desirability of a weaker yen, most observers concluded that the Abe playbook had been absorbed, cherished and revived.
It had not.
A series of recent moves by Takaichi have laid that alarmingly bare.
She has made it plain that she does not share one of the core ambitions of Abenomics — and has distinct ones of her own.
In June, Takaichi set out her flagship economic strategy.
It centres on a $2.3tn investment plan that will channel public and private funding into 17 strategic sectors between now and 2040. So far, so Abenomics.
These sectors include AI, data centres and video games but, oddly given its importance, omit the car industry.
Without a clear breakdown of how the $2.3tn would be split between public and private funding, concerns have gripped markets: was Takaichi preparing to open the fiscal taps recklessly wide?
Were Japanese government bond yields set to surge?
And will anything pull the yen back from multi-decade lows?
There have been repeated reassurances from the government that all has been carefully thought through.
But the latest answer to the market was for finance minister Satsuki Katayama to prominently suggest Japan’s big pension funds, including the $1.81tn Government Pension Investment Fund, increase their weightings in domestic assets — for which read: “Buy more JGBs.”
Even before the market had a chance to question the practicalities of rebalancing the GPIF portfolio outside its five-year schedule, investors could see this was a new form of verbal intervention in the bond market: an admission of weakness from a nervous government straining to prevent yields on the 10-year JGB edging above 3 per cent.
But Katayama wasn’t done.
She also brought up the idea of allowing ordinary Japanese to put government bonds in their tax-free Nippon individual savings accounts.
These accounts (modelled on UK Isas) were specifically introduced by Abe to encourage Japan’s cash-hoarding “Mrs Watanabes” to shift her savings into riskier assets.
Nisas were absolutely not intended as receptacles for JGBs, which are, as Takaichi is now so keen to assert, non-risk assets.
Through these three moves, Takaichi has demonstrated a fundamental divergence between Abenomics and her own ideological sense of what Japan should look like, and how to go about making that happen.
At the core of Abenomics was a pressure towards better governance.
In the corporate world, that was imposed through governance and stewardship codes (which set higher standards on both companies and investors), explicit empowerment of shareholders and tolerance of activism.
Abe, for all his ideological fervour, was not dirigiste; his industrial policy was guided by an acknowledgment that, with good governance, shareholders and market forces might work best for Japan.
Takanomics does not appear to share that faith. It may yet be right for Japan, but it must prove itself against Abenomics — and investors may well decide they do not like the change.
Takaichi’s industrial policy reveals emphatically pre-Abenomics thinking, with no sense that improved governance remains a priority.
It embeds the idea that companies should invest according to a government plan.
Shareholders who view the market as a better allocator of capital than the government may come to be seen as a problem.
By merely invoking the investment choices of the GPIF, Takanomics revives a past where institutional independence was wafer-thin and beholden to politicians rather than the long-term interests of the people.
Equally, the idea of co-opting Mrs Watanabe to prop up the domestic bond market requires a view of the general public that sees them as stooges rather than investors.
Both Abenomics and Takanomics are, despite some internal paradoxes, coherent.
As a matter of urgency, though, Japan and the world need to recognise that they are fundamentally different.
The clashes we have seen in recent weeks are only going to grow louder and more unsettling.
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