Sanae Takaichi, poised to become Japan’s first female prime minister, appointed former premier and party heavyweight Taro Aso as vice president of the ruling Liberal Democratic Party (LDP) on Tuesday, a move analysts say could temper expectations of aggressive government spending under her leadership.
Takaichi, a fiscal dove who won the party leadership on Saturday, also named former finance minister Shunichi Suzuki as LDP secretary-general, one of the most powerful roles in Japanese politics, overseeing party operations and funding.
The appointments form the foundation of her new administration, which is expected to take office later this week.
“During the leadership race, the Aso faction backed Takaichi, so her administration may remain strongly influenced by him,” said Takahide Kiuchi, executive economist at Nomura Research Institute. “Aso’s influence could moderate aggressive fiscal or overly dovish monetary impulses.”
Financial markets responded sharply to Takaichi’s rise, with Japanese share prices climbing on expectations of large-scale stimulus, while the yen weakened and bond yields surged.
On Tuesday, the yield on 20-year Japanese government bonds hit a 26-year high, while the 10-year yield rose to a 17-year peak, reflecting investor concern over Japan’s mounting public debt.
Aso, 84, who served as prime minister during the 2008 global financial crisis and as finance minister during Shinzo Abe’s “Abenomics” era, is viewed as a fiscal conservative advocating for budget discipline in the world’s most indebted major economy.
Suzuki, his longtime ally, is also known for emphasizing fiscal responsibility, suggesting Takaichi may face pressure to scale back her spending ambitions.
Still, markets remain uneasy amid speculation that Takaichi’s minority coalition could seek an alliance with the opposition Democratic Party for the People, which is pushing for income tax cuts and expansive stimulus measures.
“If Takaichi were to choose the Democratic Party, the size of spending could rise depending on what its leader demands in exchange for forming an alliance,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.
While Aso’s appointment is widely seen as an attempt to reassure investors and stabilize the LDP, analysts caution his influence may not be enough to offset the new leader’s pro-growth agenda.
“There’s no guarantee Aso would serve as a counter-force against big spending,” Muguruma said. “Given so much uncertainty, there won’t be many investors willing to buy Japanese government bonds right now.”
Source: Reuters
Written By Rodney Mbua
