Japan Economics:Cabinet Reshuffle,Mostly Good
PM Abe announced his new Cabinet today. Our chief criterionfor judging the impact on economic policy is the density ofeconomic expertise. Other factors include a Cabinet that is notcomposed mainly of close Abe associates, whether ministersfavor structural reforms, and ability to implement.
Expertise:Many of the new Cabinet ministers have high levels of economic expertise, andgood track records. The new minister of economic and fiscal policy, ToshimitsuMotegi, was a pro-reform minister for financial reform, and most recently servedas the head of LDP policy formation. He will also be responsible for economicrevitalization. Other new Cabinet ministers with good economic credentials andstrong track records include Chief Cabinet Secretary Yoshihide Suga, EducationMinister Yoshihisa Hayashi, Agricultural Minister Ken Saito, METI MinisterHiroshige Seko, and Foreign Minister Taro Kono.
In contrast, some other ministers may face a skeptical response. True, the newminister for Health, Labor, and Welfare, Katsunobu Kato, has an undergraduatedegree in economics from Tokyo University; however, the content of the WorkStyle Reform proposals that he oversaw is, in our view, inadequate. Hence, hisability to implement the crucial reform agenda depends on his ability to cure themany inadequacies of the current proposals.
The new minister for Internal Affairs and Communications, Minister Seiko Noda,has a long history of skepticism on reform proposals; indeed, she opposed thePostal Reform under the Koizumi Cabinet, and was allowed back into the LDPunder the blanket amnesty that PM Abe gave during his first stint as PM. Manycrucial reform initiatives, including the Special Economic Zones, hinge on herministry. Investors will be watching for signals that her ministry is fullysupportive of Abe's reform plans.
Cabinet structure:The density of Abe's close associates in the new Cabinet is much reduced. This iscrucial not only for effective policy management, but also as the foundation forrestoring confidence in the government.
Cabinet Support:We expect a mild bounce in the Cabinet support rate. PM Abe has clearly takenthe results of the Tokyo Assembly election of July 2, in which his party suffered amajor defeat, into account. In terms of our CRIC cycle – the cycle of Crisis,Response, Improvement, and Complacency that describes the interaction ofpolicy and the economy – the Cabinet reshuffle is the first part of the Responsephase.