Japan’s new leader is prisoner of the policies he inherited

Japan's outgoing prime minister gave his successor, Fumio Kishida, a gift. In one of his last acts, Yoshihide Suga will lift emergency pandemic restrictions that have hampered the country's most economically vital regions. It gets progressively harder for the new leader from there.

Kishida emerged from a four-way ballot Wednesday to become leader of the ruling Liberal Democratic Party, making him a shoo-in as prime minister when parliament gets its say next week. Suga is resigning after a surge in Covid-19 infections and a stop-start economic recovery made him an electoral liability for the LDP after just a year in the job. A general election must be held by late November, so Kishida's primary task will be to protect the LDP's sizable majority bequeathed by former premier Shinzo Abe, who stood aside in 2020 for health reasons. 

Easing restrictions on areas that comprise about three-quarters of gross domestic product will be a good start. Kishida also stands to benefit from the ramped-up vaccinations that make the relaxation possible. After a slow start, more than 58% of the population is fully immunized.

High on his agenda will likely be a big fiscal stimulus package, and Japanese stocksrallied this month in anticipation of a boost to growth. Kishida is a supporter of monetary easing and the Bank of Japan's inflation target of 2%. If he can hang on to his own job, he will get to appoint a successor to BOJ Governor Haruhiko Kuroda, whose second term ends in 2023. Beyond the electoral timetable, enormous challenges loom. Suga was understating it in his final press conference Tuesday when he said the nation is tested by a shrinking population and a declining birth rate.

Japan has become the poster-child for demographic decline, though it is hardly unique. Fertility rates are languishing in advanced Asian economies like South Korea, Singapore, Taiwan and Hong Kong. China's population is barely expanding. Even places with a relatively hale rate, such as Indonesia, have indicated they want fewer kids.

He's also likely to face some edgy calls on foreign policy. Like many nations in Asia, Japan has for a long time preferred not to publicly entertain a choice between the guarantor of its security, the US, and its biggest trading partner, China. But it's becoming harder to fudge this. Just ask Australia, which for a long time had a similarly split defense-commerce approach.

Canberra took a step closer to ending the fiction this month when it agreed to a new accord with the US and UK that would see Australia develop nuclear submarines, a move that infuriated China. The stakes are greater for Japan, given its closer proximity to China and territorial disputes. Kishida, a former foreign minister, knows this as well as anyone. 

The candidates had few warm and fuzzy things to say about China during the LDP contest. Some of this is probably posturing, but it's worth noting that there seemed to be some mileage — or at least no real pain — in using provocative language. Kishida accused Beijing in a YouTube discussion of wanting to export "its authoritarian system around the world'' and said Japan needed to stand up for "universal values.'' 

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.