The factional war shakes Japan: the country's economic dossiers are in the crosshairs

During a parliamentary hearing convened by the ethics committee of the Diet, Japan's parliament, the country's prime minister, Fumio Kishida, publicly apologized for the undisclosed campaign finance scandal involving his Liberal Democratic Party (LDP).
The LDP, in power for much of the time from 1955 to the present, has come under fire due to multiple accusations against various party members.
Or rather, of exponents of some factions within the LDP, who would not have registered part of their income deriving from the party's fundraising, thus creating real slush funds.
While waiting for the investigations to take their course, high-level profiles have so far been replaced, such as Cabinet Secretary Hirokazu Matsuno, Minister of Economy and Industry Yasutoshi Nishimura, Minister of the Interior Junji Suzuki and Minister of 'Agriculture, Ichiro Miyashita.
Meanwhile, speaking of factions, the Japanese media has turned the spotlight on groups within the LDP in relation to the country's delicate economic situation.
Due to the scandal, and the consequent collapse of consensus of the Kishida government, increasingly under pressure (according to the latest polls the consensus would have reached 25%, the lowest figure since the LDP returned to government in 2012), Japan Times wondered how factions of the prime minister's party might change their minds on national economic issues.
From the management of the Japanese public debt – more than 2.5 times larger than the size of the country's economy – to the record budget allocated for the current fiscal year, there are numerous burning issues.
Japan's economic dossiers Concerns about Japan's fiscal health have grown to a peak a few days ago, when the news was released that Germany had overtaken third place in the ranking of the strongest economies in the world, to the detriment of the Asian country , relegated to fourth place.
Tokyo faces a technical recession, the collapse of the yen and a widespread increase in living costs (insignificant values from our point of view, not from the local one).
In short, the moment is complex, if we add to this the international tensions and the military strengthening decided by the Kishida government.
It cannot be ruled out, some Japanese media have hypothesized, that the scandal over LDP funds could somehow change the way the Party views public spending.
The key to all this coincides with the "fall" of the LDP faction previously led by the late former Prime Minister Shinzo Abe, as well as the possible emergence of new currents within the party.
Recall that Abe – who in the past had defined the Bank of Japan as “a branch of the Japanese government” – has always been one of the most vocal supporters of expansionary policy, pushing monetary easing, fiscal stimulus and structural reform as hypothetical cures for a stagnant economy.
Well, his economic vision has survived, as demonstrated by the resistance that the Abe faction had initially put up against a tax increase to cover the increase in defense spending at the end of 2022.
It cannot be ruled out, however, that the dynamics can change.
Faction war Members of the so-called Abe faction (of which Kishida is also a part) still constitute a significant part of the LDP that supports expansionist policies.
The point is that the aforementioned faction – of over 90 members – is destined for dissolution due to the aforementioned funds scandal and CGH, above all, has lost its weight within the Party.
At the same time, the LDP has been discussing new ways of how to rebalance the nation's finances.
A Party committee focused on the issue, for example, held its first meeting under a new structure, confirming its commitment to offer recommendations to the government on the primary balance – the difference between government revenue and expenditure, excluding interest payments – and to reduce public spending.
The panel boasts LDP heavyweights such as party vice president Taro Aso and former deputy chief of staff Seiji Kihara, one of Prime Minister Fumio Kishida's closest confidants.
However, some within the LDP believe that the commitment to high public spending is rooted within the Party more broadly.
Therefore, the demise of the Abe faction may not have as decisive an impact on fiscal policy debates as some may believe.
The majority of parliamentarians are pushing for increased budgets, although many LDP members believe such a move may not be healthy.
In any case, the Kishida administration's commitment to fiscal health will come under further scrutiny.
The current draft budget estimates that in the next fiscal year, which begins in April, government spending will reach about 112 trillion yen ($744 billion), down slightly from last year's all-time high of 114 trillion yen.
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