Fumio Kishida, the Prime Minister of Japan, has submitted his resignation, effective next month. He made this decision in response to persistently low approval ratings and controversies involving his party’s finances. His tenure has centered on his economic policies, particularly addressing the yen’s depreciation. The yen’s recent decline to a 40-year low against the dollar has eroded consumer confidence in an economy that was progressively recovering from deflation, negatively impacting food and petroleum prices. Despite this impediment, Kishida’s economic reforms in Japan have prioritized wage increases as a fundamental component of his new capitalism strategy.
Kishida resigned due to economic challenges, which included urging businesses to increase compensation to stimulate a more comprehensive economic expansion. According to the Rengo union group, large companies implemented a 5.1% average annual pay increase in response to his appeal, the highest in 30 years, with smaller companies following suit at 4.5%. However, inflation adjustment did not yield substantial real wage growth due to these wage increases. In June, the first salary increase in 27 months occurred, with a meager 1.1% increase.
Kishida’s economic reforms in Japan departed from the past when a weaker yen would have bolstered exports and GDP. The increased production of products by Japanese companies in foreign countries is reducing the currency’s influence. Policymakers are becoming more worried about how the yen affects families. Under Kishida’s leadership, the Bank of Japan raised interest rates for the first time in 17 years. This caused the yen to rebound and had a ripple effect on markets around the world.
Experts view Kishida’s wage policies as a major success despite not fully curbing inflation. The key question now is whether Japan will continue reforming or revert to intermittent policy changes. Tatsunori Kawai, chief analyst at au Kabucom Securities, expressed uncertainty about Kishida’s successor’s ability to handle Japan’s economic issues. Despite these concerns, there is still hope for making significant steps forward. Economists stress how important it is for things to move in a new direction, including changes. This will mark the end of a time when a weaker yen was considered good.
