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the hawk shigeru ishiba, who advocated the normalization of interest rates, won an upset victory, which had a huge impact on the market. as a recognized "enemy" of abe, shigeru ishiba's rise to power seems to imply that the era of abenomics in japan is coming to an end.

on september 27, shigeru ishiba, the former secretary-general of the liberal democratic party of japan, was successfully elected as the new president of the liberal democratic party of japan and is expected to take over as prime minister after being nominated by congress on october 1. as soon as the results came out, it directly ignited japan's expectations for interest rate hikes. japanese stock futures fell sharply after the bell, and the yen soared against the dollar.

unlike abenomics, which supports loose monetary policy and advocates active expansion of fiscal spending, ishiba supports the return of monetary policy to normalization and takes a positive stance on fiscal consolidation.

barclays analysts naohiko baba and ryuichiro hashimoto said in a september 27 report,ishiba's victory may signal support for the bank of japan's normalization of monetary policy. reuters quoted analysts as saying that shigeru ishiba's coming to power has cleared an obstacle for the bank of japan to further raise interest rates.

"hawks" came to power to focus on both monetary and fiscal matters

in march, the bank of japan ended negative interest rates and raised them to 0.25%, a "landmark" move away from a decade-long aggressive stimulus program. after winning the election, ishiba said that japan's monetary policy will generally remain loose.but it also signaled it would not prevent interest rates, which are still near zero, from rising further.

specifically, barclays analysts said that in terms of monetary policy, shigeru ishiba advocates the normalization of monetary policy.and showed the most hawkish stance among all candidates, who also described the recent performance of the yen as “weak” rather than “cheap”:

"the long-term extraordinary easing policy has worsened both japan's national finances and the bank of japan's financial position."

but he also made it clear that he would "respect" the bank of japan's decision to raise interest rates rather than "push" it in that direction.

shigeru ishiba is close to the policy ideas of the current government, supporting a gradual return to a normal interest rate environment to boost the yen. shigeru ishiba has previously stated that the "abenomics" route needs to be corrected, and that a gradual return to a normal interest rate environment will help curb inflation and promote structural reforms.

it is worth noting that ishiba said that he will promote the improvement of fiscal conditions to promote sustainable and stable economic growth. he also mentioned possible increases in corporate and personal income taxes,showing his positive stance on fiscal consolidation.

but he also said that "if necessary, we will deploy fiscal stimulus measures. there will be no change in japan's loose monetary policy trend."

parting ways with “abenomics”

"ishiba's victory will make it easier for the bank of japan to normalize monetary policy," said takeshi minami, chief economist at norinchu bank.on the economic policy front, japan is saying goodbye to abenomics”。

according towall street news vip articlesanalyze,in the era when abe almost "unified" the liberal democratic party, shigeru ishiba can be said to be the only voice opposing abe, so it can be said that ishiba and abe suffered repeated defeats while abe was still alive. in terms of economic policy, takaichi sanae inherited the loose monetary policy from abenomics and advocated actively expanding fiscal spending to boost the economy and stock market. however, shigeru ishiba is "hawkish" in terms of monetary policy. in an interview with reuters in august 2024, ishiba said: "slowly achieving an interest rate environment under the background of monetary easing may be the right policy. ”

regarding the fiscal deterioration of japan and its central bank, ishiba also attributed these to abenomics. judging from this election, the market believes that from the perspective of monetary and fiscal policies alone, ishiba is less friendly to the market than takaichi sanae.

kazutaka maeda, an economist at meiji yasuda research institute, also said:

"based on today's results, the impact of abenomics will largely disappear and the next rate hike will come as early as december."

previously, bank of japan governor kazuo ueda said that if the inflation rate continues to stabilize at its forecast of 2%, the central bank will continue to raise interest rates. but he stressed that the central bank would take time to assess the impact of global economic uncertainty on the recovery of japan's fragile economy.